segmental reporting - millenniumbcp · pdf filefunds through an enhanced product portfolio for...

SEGMENTAL REPORTING

Millennium bcp offers a wide range of banking activities and financial services in Portugal and abroad, focusing onRetail Banking, Companies, Corporate & Investment Banking and Private Banking & Asset Management.

BUSINESS SEGMENTACTIVITY

The figures reported for each business segment result from aggregating the subsidiaries and business unitsintegrated in each segment, including the impact from capital allocation and balancing process of each entity, bothat balance sheet and income statement levels, based on average figures. Balance sheet headings for each subsidiaryand business unit are re-calculated, given the replacement of their original own funds by the outcome of thecapital allocation process, according to regulatory solvency criteria.

As the process of capital allocation follows the regulatory criteria of solvency in place, the risk weighted assetsand, consequently, the business segments’ capital allocation, were determined in accordance with the Basel IIframework, applying: i) in 2009 to the Standard approach for calculating capital requirements for credit risks andii) in 2010 to the IRB Advanced for credit risk Retail portfolio related to small retail business or collateralised byresidential or commercial real estate, and IRB Foundation for corporate loans in Portugal, excluding propertydevelopers and other entities simplified rating system.

In 2009, subsequent to authorisation from the Bank of Portugal, the Bank adopted the standard approach foroperational risk and the internal models approach for general market risk and foreign exchange risk, for theperimeter managed centrally from Portugal. Each operation is balanced through internal transfers of funds, withno impact on consolidated accounts.

To ensure comparability, changes in the second half of 2009 and 2010 in the organisation of the segments werereflected in the figures for 2009: Retail Banking and Companies were separated, the Corporate network becamepart of the Corporate & Investment Banking segment and Interfundos, which was part of Private Banking & AssetManagement, joined the Companies segment.The business of the Millennium bcp Bank & Trust in the CaymanIslands has been considered in the Foreign Business segment, rather than the Private Banking & Asset Managementsegment, as it was previously.

The capital allocation of each business segment in 2010 was 6.5%, and was considered, for comparative purposes,the same percentage of capital allocation in 2009.

The net contributions of each segment include, where applicable, the minority interests.Thus, the net contributionreflects the individual results achieved by its business units, independent of the percentage held by the Group,including the impact of movements of funds described above.The following information is based on financialstatements prepared according to IFRS and on the organisational model in place for the Group, as at 31 December2010.

SEGMENTAL REPORTING

108

2010ANNUAL REPORT VOLUME ISEGMENTAL REPORTING

RETAIL

The Retail Banking segment includes: i) the Retail Bank in Portugal, where the strategic approach is to targetmass-market Customers, those who appreciate a value proposition based on innovation and speed, as well asPrestige and Small Business Customers, whose specific characteristics, financial assets or income imply a valueproposition based on innovation and personalisation, requiring a dedicated Account Manager and ii) ActivoBank,a bank focused on clients who are young in spirit, intensive users of new communication technologies and whoprefer a banking relationship based on featuring simple, modern products and services. Retail Banking operates,under the Group strategy of cross-selling, as the distribution channel for products and services of other Groupcompanies.

The net contribution from Retail Banking in Portugal stood at 106.9 million euros in 2010 compared to 151.4 millioneuros in 2009.

In line with the strategic priority of repricing transactions, adjustments to the pricing of spreads and commissionsset for the Retail Banking, the other net income showed a favourable performance compared to 2009,underpinning the evolution of commissions associated with Customer loyalty programmes, particularly thoserelated to demand deposits and risk insurance.

The performance of net interest income in 2010 was influenced by the lower volume of loans to customers,despite the positive effect associated with the repricing of loans.

Operating costs dropped from 2009, driven by the measures implemented to simplify the organisation and tooptimize processes, as well as by the reduction in the number of Employees.The increase in impairment chargesposted in 2010 resulted from the higher levels of non-performing loans.

In 2010, Retail Banking reduced the commercial gap, in line with the strategic priority of expanding customerfunds through an enhanced product portfolio for small savings and investment solutions with low risk.Thus, totalcustomer funds, reflecting the commercial effort to further increase customer funds, remained stable andamounted to 36,133 million euros as at 31 December 2010, compared to 36,204 million euros as at 31December 2009. Loans to Customers fell 3.3% to 33,547 million euros as at 31 December 2010, comparedto 34,678 million euros recorded on the same date in 2009, influenced by the reduction of mortgage loans,loans for property development, consumer credit and finance companies.

Million euros

31 Dec.10 31 Dec. 09 Change % ‘10/‘09

PROFIT AND LOSS ACCOUNTNet interest income 514.5 628.1 -18.1%Other net income 452.6 433.8 4.3%

967.1 1,061.9 -8.9%

Operating costs 670.3 725.5 -7.6%Impairment 151.2 130.6 15.8%Contribution before income taxes 145.5 205.8 -29.3%

Income tax 38.6 54.4 -29.1%Net contribution 106.9 151.4 -29.4%

SUMMARY OF INDICATORSAllocated capital 1,045 1,326Return on allocated capital 10.2% 11.4%Risk weighted assets 16,076 20,397Cost to income ratio 69.3% 68.3%

Loans to customers 33,547 34,678 -3.3%Total customer funds 36,133 36,204 -0.2%

Note: Loans to customers and customer funds on monthly average balances.

2010ANNUAL REPORT VOLUME I

SEGMENTAL REPORTING

109

110

CARDSThe Cards Department was created in November 2010, as a result of the recognition of the growing complexityof the payment card business in recent years, requiring greater and more dedicated attention, aimed at increasingthe Customer base and improving Customer loyalty levels through higher valued service.

Payment cards are a global business by nature, multifaceted and with many interventions and interdependencies,both at a national and international level, comprising judgements and opinions of decision making and regulatoryauthorities in areas of policy, economics, tax, competition law, consumer rights and other related rights.

Also underlying the creation of this Department was the responsibility of higher standards in the search for newsolutions, in order to achieve difficult and ambitious targets, namely relative to business profitability, challengedupstream and downstream by factors which have radically transformed their rational economic foundations.

Millennium bcp has assumed a distinguished position in the payment card market, in a context, which is, in manyaspects, totally new, and in an area of activity, which is highly competitive and has challenged the preferences ofthe best and most profitable Customers of the Bank.

The Cards Department was given the responsibility for the entire payment card business marketed by Millennium bcp,in all its areas – debit, credit, prepaid, co-branded, affinity, private – and for all the brands of which the Bank is theissuer or acquirer:Visa, MasterCard,American Express and Multibanco.The Cards Department now represents theBank at the national and international payment systems as well as at the decision making authorities, on mattersof cards as means of payment, namely the Bank of Portugal.

The card business increased 1.8% in invoicing and 4.7% in volume ofpurchases. In the current economic environment, debit cards gained in termsof preference and significance, having been the main growth engine ofinvoicing, with an increase of 6.7% in the volume of purchases relative to2009. Credit cards, in spite of a decrease of 1.6%, still maintained a goodperformance, bearing in mind the difficult economic environment in 2010.

In order to attenuate and even counteract the current economic climate,Millennium bcp centred its activity in 2010 on a number of sales andrelationship initiatives, thus reinforcing the main value propositions of thecards that constitute its offer, among which the following should behighlighted:

The launch of the new “Prestige Security” card, a “top of the range” creditcard, directed at the Affluent segment and included in the “Prestige” offer.It stands out for its exceptional assistance insurance package and uniqueholiday and insurance promotions. In 2010, more than 44,000 new“Prestige Security” cards were placed;

Implementation of credit card campaigns, namely Mastercard,Visa – “I’mGoing To Rock in Rio”, and the American Express Blue card – “Your Bluetakes you to Rock in Rio!”, which in May 2010 offered 27,000 Customersa day of music and festivities;

Offer of cinema tickets, within the scope of the loyalty programme “Showyour card and win a cinema ticket” of Millennium bcp cards, in partnershipwith Zon Lusomundo. In 2010, about 292,000 cinema tickets were offered;

Implementation of an appealing commercial campaign, “Purchases thatare worth money: 5 new purchases with the card, worth 25 euros on theaccount card” within the scope of the 25th Anniversary Campaign forMillennium bcp.The credit cards were linked to this initiative and it wasrecorded a strong adhesion of the Bank's Customer base, with a newsales result 40% higher than the result in the first quarters of 2010;

TOTAL NUMBERS OF CARDSThousands

Purchase turnover

Card invoicing

2008

3,059

13,419

5,803 5,708

13,228 13,467

5,978

2009

3,000

2010

2,944

EVOLUTION OF CARDS INVOICINGANDTURNOVER OF PURCHASESMillion euros

2008 2009 2010


The continuation of social solidarity programmes, allowing Customers holding Millennium bcp Classic AmericanExpress and Gold to discount the points received for their purchases on donations to social institutions,with emphasison Portuguese Caritas, Casa do Gaiato, the Portuguese League Against Cancer, UNICEF and Acreditar.

With respect to American Express cards, 2010 was characterised by the alignment and execution of activitiesinitiated in 2009, whose positive results are already apparent, based on the following initiatives:

Implementation of the campaign “Your Blue takes you to Rock in Rio!”;

Implementation of the Blue card campaign “This summer, accelerate with an American Express scooter” whichawarded five Customers with a scooter for using their card;

Recognition of the launch of theTwin Cards by American Express, with an Honourable Mention in the categoryof Outstanding New Card Launch at the GNS Marketing Awards.This innovative solution was in campaign inAugust and September, and achieved an average increase of 80% in sales;

Implementation of two strong campaigns offering additional miles onTAP – Air Portugal cards, aiming to concentrateinvoicing on these cards.The partnership through the sponsorship of TAPVictoria events was also reinforced, withemphasis on theVictoria Open Golf tournaments, recalling the vital importance of this portfolio, both in terms ofexclusivity and prestige of the partnership, as well as contribution to the Bank’s results;

Promotion of the conversion of Membership Rewards points into solidarity, which enabled an increase of 72.5%in 2010, relative to the value donated in 2009.The following institutions benefited from this support:Ajuda deBerço,Acreditar, CERCI, MaterTimor Foundation and the Cais Association;

Signing of the new Partnership Contract with American Express, at the end of November, with the attributionof three operating licenses for Portugal as an exclusive Independent Operator.The new contract guaranteesMillennium bcp exclusivity in the issuing of Centurion (five years) and Acquiring (seven years) cards, as well asa five year license for the issuing of Blue Box Line cards;

Addition of more than 4,000 new points of sale to the American Express Traders Network, increasing thenational coverage rate of POS credit to close to 75%;

Increase of 9.1% in business volumes at the Acquiring operation, through greater use of national andinternational American Express cards at national establishments.

The objectives for 2011 in this segment are based on four fundamental vectors: i) grow in invoicing and numberof active cards; ii) increase the profitability of the portfolio, by encouraging the preferential use of the cards forshopping, instead of AutomatedTeller Machine (ATM) withdrawals; iii) revitalise and simplify the offer, adjusting itin a flexible manner to the new preferences of Customers and iv) reinforce the value and notoriety of theAmerican Express cards, highlighting its many advantages for Customers and further extending the AmericanExpress acceptance network in Portugal.


SEGMENTAL REPORTING

111

112

CREDITMortgage loansIn view of market conditions, adjustments were made to the pricing tablefor spreads and commissions, aiming to preserve profitability, as well asadapting the risk variables, namely loan-to-value (LTV), repayment andgrace periods, guided by greater rigor in credit analysis and concession.Within the scope of the credit line – Mortgage Moratorium – resultingfrom a government measure created to help families in situations ofunemployment, Millennium bcp approved about 700 requests. Note shouldbe made of the initiatives to foster the Mediators Channel, with a view toincreasing the business originated by these partners, as well as thepromotion of auctions of the Bank's real estate holdings and of the realestate associated with Property Development Loans, involving specialconditions.

Personal loansMillennium bcp launched the “Tailor-made Loans”, an innovative product forhigh amounts, aimed at satisfying the needs of a specific market segment.The internal promotion of Personal Loans and Auto Solution campaigns wasa constant, enabling the Commercial Network to focus on the objectives ofcredit concession as a means of continuing support to Customers. In orderto comply with the legislation in force, in relation to the usury rate, implyingchanges to the maximumTAEG for each quarter, adjustments were made tothe pricing table for rates and commissions and of the overall offer ofPersonal Loans.

Business loansIn the Business segment, activity has focused on initiatives to renegotiate thepricing conditions oriented towards the need to defend net interest income,sharing the consequences of the increase in the cost of funding.At the sametime, adjustments were made to the pricing table for spreads and commissions.

For 2011, the strategy of Millennium bcp in this segment will continue to bebased on the pursuit of Customer alert signal identification policies, toanticipate financial difficulties that may lead to default, on the development of

loan portfolio analysis actions with a view to retaining Customers and the defence of net interest income, on thedevelopment of actions that boost the attraction of new Individual Customers.The Bank will pursue its action, in aselective and rigorous manner, taking into account the credit quality and the positive impact on the Bank’s incomestatement and on the new of commercial partnerships, namely in the Business segment, sharing benefits withCustomers, creating a new paradigm of commercial relations and risk management, with a specific focus onsupporting operations associated with the export of goods and services.

INSURANCEIn 2010, the Insurance Products Unit recorded an increase of 0.3% in production relative to the previous year,entirely based on active sales, since the sale of insurance associated to credit shows a declining trend, essentiallydue to the decline in payment protection plans associated with consumer credit.

Mortgage loans payment protection plans and Auto loans insurance merit special mention. In both cases thevolume of premiums tripled comparing to previous year.

In active sales, Médis health insurance, with a portfolio growth in excess of 5.8%, stands out. In this segment,Millennium bcp Ageas continues to increase its market share, which reached about 25% at the end of the year,the second largest national operator in the business.

LOANSTO CUSTOMERS IN PORTUGALExcludes ActivoBankThousand euros

33,526

22,229

9,279

2010

34,653

22,479

9,970

2009

35,055

22,346

10,305

2008

Loans to companiesConsumer creditMortgage loans

2,0182,2042,404

MORTGAGE LOANSNEWPRODUCTIONMillion euros

1,298

20102009

2,687

19.2% 15.8% 13.4%

2008

Market share

1,597


During 2010, the Médis Vintage insurance product was launched for the senior segment, which increased theacceptance from health care providers. Personal accident insurance was also reformulated, enabling betteradequacy to market needs.

The “Home Protection” multi-risk insurance, with extensive coverage, has had a great acceptance in Retail, withnear 4.3% growth in 2010.“Pétis” insurance, intended for civil liability protection and veterinary care of pets (catsand dogs), grew strongly this year, being well accepted by Customers, resulting in an increase of the coverageplaced in the market during the first half of 2010.

In the insurance segment in 2011, Millennium bcp will continue to focus on growth in active sales, essentiallythrough the Médis health insurance and payment protection plans, and will also focus attention on the Businesssegment, with the launch of more structured plans that are better adapted to the target market.

SELF-BANKINGAND PAYMENTSSelf-banking equipment installed in branchesMillennium bcp continues to invest in the installation of intelligent ATM,incorporating deposits technology with validation of notes and imagescanning of cheques, holding a market share of 38% in this type ofequipment, which is synonymous with innovation and Customer servicequality. The placement of this equipment has followed a strategy ofproximity and convenience, focusing on areas of active foot traffic andsupplies provision for the population, namely food retail outlets, shoppingcentres and integrated public transport hubs. For the exclusive use of itsown Customers, the self-banking areas of Millennium bcp’s branches havereceived new models of machines for deposits in bags, of money orcheques, a value added service for small businesses, improving the quality,speed and availability of the service.The placement of equipment designedfor blind people and people with reduced mobility continue to bepromoted in these areas.

RemoteATMMillennium bcp continues to pursue a strict management of locations forremote ATM equipment, with a clear return in the usage of this equipmentand an average record of transactions considerably higher than the total ofthe Multibanco network.As a result of this activity, the profitability associatedwith the total number of ATM machines increased by about 6% in 2010,despite the decline in market share in terms of number of equipment.At the same time, Millennium bcp continuesto invest in the security of ATM and the locations where the machines are installed, with positive results in termsof number of incidents, which are also due to dissuassion fomented by the implementation of the innovativebanknote inking system in its ATM.The Bank has once again achieved pioneer status with the implementation ofthis system, maintaining the largest number of machines protected.

Point of SaleTerminalsMillennium bcp, in its constant quest for solutions that reduce cash circulation and increase the use of electronicpayment means by consumers, undertook several commercial measures to place Point of SaleTerminals (POS),which extended the number of the points of acceptance of debit and credit cards.

ChequesThe cheque is gradually being replaced by means of payment that are more efficient, more secure and in manycases less costly, namely bank transfers. Millennium bcp continues to strengthen security with regards to thismeans of payment, restricting its usage to Customers of lower risk and obliging compliance with specific criteria.In the fourth quarter of 2010 some line items of the supplementary price table for of cheques were revised, witha positive direct impact on the net operating income of cheques, compensating the Bank for operating servicesprovided.

SELF-BANKING EQUIPMENTUnits

3,473

859

2010

3,498

2,644

2009

3,599

2,748

2008

ATM

CAT and Others

2,614

854851


SEGMENTAL REPORTING

113

114

SEPA Direct DebitsMillennium bcp launched, within the framework for creation of the Single Euro Payments Area (SEPA), the SEPADirect Debit service for individuals and/or companies (core) and exclusively for companies (business-to-business).From 1 November 2010, the SEPA Direct Debits service became available to Customers of Millennium bcp.

This new service, which became operational in the 32 countries that comprise the SEPA, allows Millennium bcpCustomers to domicile, in their accounts, collections originating from several European countries in the SEPA andallows creditors to carry out collections in euros from debtors with an account in a bank of the SEPA space.

Western UnionIn 2010, Millennium bcp continued to promote the Western Union Money Transfer service, focusing on thedistinctive ease, relative to its main competitors, with which its Customers are able to undertake transactionsconveniently and securely via telephone or Internet. By adapting to the current market environment, it alsolaunched initiatives with a reduced price table for transfers to Brazil and countries of the Euro Area.

In 2011, Millennium bcp will remain commited to innovation and development of services and equipment in theSelf-banking and Payments segments.

SAVINGS PRODUCTSAND MARKETS UNITWith the purpose of reducing its dependence on international financial markets, the Bank adopted a commercial policyfocused on attracting customer funds.Customer funds captured were recorded in balance sheet funds, giving preferenceto longer maturities, aimed at rebalancing Customers’ application maturities with the average maturity of the loanportfolio in Retail.The commercial policy focused on the offer of products that met the main financial needs ofCustomers in an effective, flexible, simple and transparent manner: Savings, Investment and Retirement.

Savings – One-off savings and Planned savingsThe Bank has been actively promoting the commercialisation of productsassociated to small and medium-sized savings, focusing in particular on longermaturities, with guaranteed capital and return.The offer made to Customersmeets, in a simple way, the one-off savings needs, as well as the planned savingsneeds, which help to create savings routines and habits in Customers.Thelaunch of savings products during 2010 was followed up by extensivecommunication campaigns, focusing on the“Depósito Crescente Mais” (“MoreGrowth Deposit”) and “Poupa Mais” (“Save More”) products.

InvestmentWith respect to Customers' investment concerns, the Bank focused its activityon the commercialisation of debt securities, among which the “MillenniumRendimento Extra” (“Millennium Extra Income”) and“Millennium RendimentoSemestral” (“Millennium Biannual Income”) campaigns stand out.

In the category of medium and long-term investment, capitalisation insurancehad a very positive performance during 2010, with a growth of 14.7%.Witha more conservative investment profile, due to the economic situation over

the last few years, Customers have increasingly opted for low risk applications, with longer maturities andtransmitting a high level of security, which is why investment products and Retirement Savings Plans (PPR),conveyed by insurance products, register excellent performance.

The commercialisation of 154 million euros of “Millennium bcp Subordinated Debt 2010/2020” to Customersthat seek to obtain a higher remuneration, foregoing the liquidity of their investments in the short-term, and withadequate risk profiles for this type of product, is also noteworthy.The issuing of these securities is closely linkedto the commitment of improving the Bank’s capital ratios, in addition to contributing towards the stabilisation ofits funds base.

CUSTOMER FUNDSThousand euros

35,701

12,082

2010

35,800

24,515

2009

33,653

23,390

2008

On balance sheet

Off balance sheet

23,619

11,28510,263


RetirementThe Bank has been strengthening its offer in terms of Retirement products through the creation of new productlines, with the aim of extending its Customer base, since this is a significant element in the creation of a lastingrelationship between Customers and the Bank. During 2010, an effort was made to place these products in amore homogeneous way over the course of the year, instead of focusing their sale in the last few months of theyear.With a growth of 9.9%, the success of this strategy based itself on the promotion of commercialisation, thecreation of very attractive products in terms of returns, and the launch of campaigns at different times of the year,such as the offer of “Vouchers PPR” (“PPRVouchers”) and “Valor Duplo PPR” (“DoubleValue PPR”).

25th Anniversary of Millennium bcpOn the occasion of the celebration of the 25th anniversary of the Bank, several initiatives were created that allowedCustomers to celebrate this moment with the Bank.With regards to savings products, the “25 Years Deposit” wascreated, offering a very attractive return, with the possibility of a premium depending on the time of permanence ofthe Customer, with the final objective of attracting small and medium-sized savings.

In 2011, in the Savings Products and Markets segment, Millennium bcp will maintain its current strategy of attractingcustomer funds, focused in particular on on-balance sheet customer funds, preferably in the medium/long-term range,which may be conditioned by the persistence of the economic and financial crisis.The Bank will also continue to focuson small and medium-sized savings, in which, through attractive returns, saving habits and routines are encouraged, onthe offer of investment products, different investment alternatives, which cover the most varied temporal horizons,intending to meet the estimated maturities, and on the consolidation and growth of their assets, allowing them to fulfiltheir life projects or address their retirement concerns.This is an area in which the Bank is responsible for guaranteeingan extensive range of solutions, consistent with Customers' objectives and responding to their level of savings orexpected future profitability for their applications in retirement products.

INDIVIDUALS SEGMENTIn 2010, the Individuals segment continued to focus its commercial efforts onmatching its Customers’ needs with the various integrated solutions offered bythe Bank, to ensure a better cost/benefit ratio in the Customer relationshipwith the Bank. In this regard, three communication campaigns were launched asa means of promoting and fostering solutions: “Wage Advantage”, forCustomers who domicile their wages at Millennium bcp, the “PrestigeProgramme”, for Customers who have a broader involvement with the bank;and“Frequent Customer”, for Customers who seek a simple solution adaptedto their daily financial needs. Millennium bcp thus seeks to present financialsolutions to the market that are comprehensive, innovative and suitable for thevarious phases of life of its Customers, always seeking to interpret their needsand adapt its offer to suit them best.

The attraction of funds was a priority over the course of 2010, reflected inthe creation and promotion of competitive savings products and adaptedto the risk profile and liquidity needs of the Customers of this segment.

The Mandatory Contacts Plan continues to be used as a privilegedcommunication tool to contact Customers, supported by targetedcommercial action that, in combination with the daily commercial activity of the branch, capitalises on salesopportunities and allows for a more effective monitoring of Customer portfolios.

The start of 2010 was marked by the launch of a strong communicational campaign focused on attracting wagesunder the slogan “Change your Life – bring us your salary and start saving now”. Millennium bcp invited itsCustomers to sign up for a simple and accessible savings solution, tailored to the specific savings capability of massmarket Customers. Millennium bcp thus sought to strengthen its positioning in the market as a Savings Bank.

NEW RETAIL CUSTOMERThousands

2010

164

150

2009

174

158

2008

1316

12813

115

Mass-market

Prestige and Business


SEGMENTAL REPORTING

115

116

Within the scope of attracting wages, the measures to promote the solution “Wage Advantage –VIP Plan” amongEmployees of companies that have a protocol with Millennium bcp are also noteworthy. Millennium bcp soughtand seeks to exploit business synergies, taking advantage of the windows of opportunity provided by Customercompanies to attract their Employees.

During 2010, Millennium bcp strengthened its commitment toward Customers that have a broader involvementwith the Bank and higher profitability – “Prestige Customers” – with the launch of a targeted campaign based onthe concept “Choose to be Prestige”. Enriched with the offer of the annual fee of the “Prestige Security” creditcard, the Prestige Programme was strengthened within the commercial network, which efficiently promoted itsplacement with the best Customers.

Within the scope of social support: i) in terms of support for families, the Customer support line – FinancialCounselling Service – continued, through which attempts are made to find the most balanced solution betweenfulfilment of responsibilities and the available budget. In 2010, 209 contacts from Customers were received, whichresulted in 146 initiatives of potential support or debt restructuring.

In the financial sphere, for students who wish to pursue an academic path which implies additional costs forfamilies, Millennium bcp provides: i) University Credit with Mutual Guarantee provided under a protocol signedwith the Mutual Guarantee Societies with the support of the Ministry of Science,Technology and Higher Education,which established interest rates indexed to the annual average grade achieved by the students. In 2010, 291contracts in the amount of 3,246 thousand euros were contracted and ii) University Credit – with a lower interestrate than that of personal credit. In 2010, 278 loans in the total amount of 2,510 thousand euros were contracted.

In support of the Third Sector, the “Non-Profit Associations Account” was reformulated, so as to enable theseinstitutions to be included in the financial system.As such, no minimum value is required to open this account andit is exempt from maintenance and overdraft commissions.

Within the sphere of environmental responsibility, a credit line was created in 2010 by Millennium bcp withpreferential interest rate conditions,much lower than those practiced in Consumer Credit and with no commissionsassociated, designated as Renewable Energies Credit, directed at Customers seeking loans to purchase renewableenergy equipment, with 41 loan operations in a global amount of about 461 thousand euros having been approved.

Millennium bcp continued to focus on the younger Customers segment, revitalising the offer with the creationof specific savings products, among which the “Piggy Bank Savings” is noteworthy, which, by allowing a monthlypay-in programme, teaches young people how to save for the future.

At the end of the year, the “Frequent Customer” solution, a product that is well known and recognised by themarket,was promoted and revitalised.With the headline“ITrust. I’m a Frequent Customer”, this campaign associatedthe commercial message of the product to the Bank’s institutional values through a much closer and intimatemessage.The final campaign indicators reveal that the Frequent Customer Solution continues to meet Customerexpectations, promoting considerable levels of savings and simplifying the management of the household budget.

Within the scope of the commemmoration of the Bank’s 25th anniversary, an institutional campaign was launchedin which the Bank shared moments, joys and accomplishments with its Customers. In recognition for sharing acommon history, Millennium bcp created a package of discounts in several products (“Star Products”) andnegotiated, exclusively for its Customers, benefits with renowned brands.

The Bank has continued to focus on promoting the Digital Statement as a way for Customers to substitute thecombined statement in paper format with the digital format. Based on the message “Lack of Space? No moreStatements”, the intention is to demonstrate that this service, totally free of charge, besides facilitating access tobanking statements, available online through the portal or email, also has advantages for the environment.

The roll out of the account opening process to all Retail Network branches closed another technologicalinnovation cycle for Millennium bcp and provided the entire network with a tool that makes the account openingprocess much more than a mere administrative act.The construction of the process was based on commercialguidelines, promoting from the very start the placement of the “Welcome” offer, which immediately provides thenecessary instruments to manage the account via the different channels of access to the Bank.This new process,on the one hand, makes account opening much simpler and more efficient, since it permits the automatic capture


of data and the simultaneous and integrated collection of complementary information of the Customer (risk,commercial profile, know your Customer) and, on the other hand, significantly reduces the cost associated to theprocess by eliminating the physical circulation of paper. At the same time, it also provides greater control andsecurity by invalidating account opening due to failure to present the mandatory documents and by allowing thedifferent control areas to perform remote consultations.

The evolution of the legal context initiated in the second half of 2009 conditioned the communication strategyof Millennium bcp over the course of 2010.The communicational messages became simpler, characterised by astrong institutional component and written communication to Customers became more frequent. In this regard,efforts to migrate toward digital communication solutions continued throughout the course of the year.

In 2011, the Individuals segment will focus its operating strategy on the promotion of actions directed at attractingand maintaining new Customers, on the “Welcome” to new Customers, on the permanent monitoring of thecommercial network, which will allow, over the course of 2011, the commercial relationsip with Millennium bcp’sCustomers to be perfected, ensuring a sustainable relationship with the Bank, thus guaranteeing the Bank's statusas their prime financial interlocutor, and on the offer of integrated solutions, namely preferential financial solutionsfor groups of specific segments.

BUSINESS SEGMENTIn 2010, the Bank continued to support the entrepreneurship and innovation of Customer companies, byrewarding them for the distinction and recognition of their entrepreneurial vision, as well as capability ofexecution and innovation, with the status of “Applause Customer 2010”. Being an “Applause Customer”means belonging to the restricted group of companies with access to exclusive benefits in financial productsand services, in addition to the market credibility provided by the “Applause Diploma”.This is an initiativethat is very successful and well accepted among Portuguese SME.

The results achieved with the “Frequent Business Customer” solution, launched in the first half of 2010, confirmthat it is a valued offer for the main transactional needs of Businesses and Individual Entrepreneurs, having registered25,860 new additions.This integrated solution provides a broad set of banking services (cheques and transfersthrough the“millenniumbcp.pt” portal, cards, personal accident, enterprise assistance and legal protection insurance)for a fixed monthly amount lower than what the Customer would pay for isolated purchase of the products.

Contributing towards success, suppor ting entrepreneurial projects and presenting innovative solutionsrequire a permanent monitoring of corporate reality, based on rigour and competence. In this regard, the“Certification of Managers” process is a challenge offered to the Employees who supervise the Businessand Enterpreneur Customers, forming part of a continuous programme designed to improve their skills andtechnical expertise.This was another challenge to the professionalism and competence of Managers, whichwill contribute to enhancing and reinforcing Customers’ relationship of confidence with the Bank andreiterate our vocation: “Go fur ther, do better and serve the Customer”.

In 2011, in the Business segment the Bank will remain commited to the successful initiatives developed in 2010,namely the initiative “Be an Applause Customer” and will continue to support entrepreneurial projects andpresent appropriate and innovative solutions to its Customers, based on rigour and competence.

PROCESSESAND SERVICES MANAGEMENT UNITThe Processes and Services Management Unit (PSMU) continued to provide support to the process of innovationand improvement of the commercial areas, maintaining and creating operational control mechanisms to providetechnical support to the functional structure that makes up the Retail Network.

In 2010, the activity of the PSMU was directed at four major areas:

Offer management, including: i) disclosing commercial guidelines, rules and competences; ii) maintenance anddisclosure of the Bank’s price list in conjunction with the units involved; iii) information on changes to rules andprocedures and iv) drawing up training manuals;

Commercial management and encouragement, including: i) disclosure of best commercial and operationalpractices; ii) participation in process re-engineering projects essential to the improvement of operatingefficiencyand iii) permanent operational support;


SEGMENTAL REPORTING

117

118

Management information, including development of projects to improve the data base;

Operational control, focused on execution of operating processes and accounting control.

From these major areas of activity, it is worth noting the following projects in which PSMU was involved:

Coordination of the transposition of Bank of Portugal regulations (Notice 8/2009) regarding the price table andinformation requirements;

Reduction of exemptions and commercial discounts of the standard price table (leakage);

Process of central renewal of credit lines and limits;

Recorded telephone message of the branches’ opening hours;

Initiatives to increase revenue – control of debit and rebate of commissions;

Classification of branches.

CAMPAIGNS MANAGEMENTAND CUSTOMER RELATIONSHIPMANAGEMENT (CRM) UNITOne of the objectives for 2010 of this Unit involved investing in the improvement of the Contact Support andComercial Activity Management of Retail tool, with a view to, primarily, increase the efficiency of sales andexecution of operational tasks and provide more and better information for the monitoring and management ofCustomer portfolios.This commercial tool provides a unique vision of the Customer in terms of the use of thedifferent channels, enables management of the various contacts and saves all historical information.

Over the course of the year, the regular contacts made by the Retail Network, using the contacts plan, increasedproximity to Customers, which had a positive impact on the Customer satisfaction index and Customer loyalty.In terms of placement of products, i.e., the improvement of the cross-selling index, a significant increase was alsoregistered as a result of the more extensive and improved use of the tool and information available on Customers.

With a view to improving the success rate of the commercial campaigns of Millennium bcp, by continually adaptingthe Offer of Products and Solutions to the specific characteristics of each Customer segment, the CampaignManagement and CRM Unit also adopted, in 2010, new software to structure, streamline and automate thecampaign implementation process.This software allows for a significant improvement in commercial effectiveness:it i) ensures that, during the campaign period, the Customers to be contacted meet the defined selection criteria;ii) streamlines and reduces the work involved in the selection of Customers for each campaign and iii) enables amore personalised offer.

The year was also marked by the conclusion of the new Retail Portal, within the scope of the creation of a newmulti-domestic intranet, a unique platform for communicating and interacting with all Employees, using the sameinformation architecture, fostering a set of synergies in terms of development, content creation, maintenance andmanagement, security and use.

Given the specific needs of a geographically dispersed commercial network, a new internal communication modelwas also developed to coordinate the contents to be presented in the different internal communication media– e-mail, Intranet and Millennium tv – taking advantage of the different channels to boost business potential.

FOREIGN RESIDENTSThe Retail Banking Support Department – Comercial Department of Foreign Residents’ main activity is to monitorand develop business with all Portuguese and foreigners living abroad who wish to have or already have arelationship with Millennium bcp. In this context, the area has the mission of attracting new Customers and funds– by remittances – for term deposits and other business, including mortgage loans in Portugal.


During 2010, the branches of the Domestic Network focused specifically on regular Customer approach practices,with the implementation of the “MUDARe” programme – Foreign Resident Monitoring Dynamic StandardisationModel – aimed at achieving a sustainable increase in business and strengthening Customers’ ties to the Bank. Inthe summer period, and continuing the tradition of welcoming people, Millenium bcp opened the doors of itsbranches in Portugal to Foreign Resident Customers, welcoming them with a financial offer designed to recognisethe results of their labour and reward their savings.The welcoming of these Customers began at the Lisbon andOporto airports with promotional stands and panels with the slogan “Welcome to the land of your heart” andat the border of Vilar Formoso with the distribution of maps of Portugal and of the newspaper “News of MyCountry”, created exclusively for the foreign residents campaign.

DIRECT BANKINGThe use of direct channels by Millennium bcp Customers strengthened overthe course of 2010.The growth rates of Internet banking use – 8% in theIndividuals portal and 14% in the Companies portal – demonstrate theBank’s continued commitment to the development of new and innovativetools to manage Customers’ finances.

The Bank consolidated the growth of the use of the “Mobile” channel, whichincreased 11% in 2010, mainly due to the launch of a new innovative mobilityconcept – the “Mobile App”, a pioneer solution in the Portuguese market.By installing a simple application on their mobile phone, Customers canaccess their accounts and conduct transactions in connection with theirfinancial assets in a simple, quick and secure way.This application is availablefor the iPhone, BlackBerry and Smartphones (Java) and shall in due coursealso be available for other operating systems. Users can monitor thebalances and movements of demand accounts, savings accounts and creditcards, pay current expenses, make transfers to Millennium bcp or to otherbanks accounts and top up mobile phones, among other transactions thatcan be carried out through this application. With this new concept,Millennium bcp intends to extend the alternatives of contact with the Bank,providing its Customers with an easier choice in line with their needs.

In 2011, it is the Bank’s intention to continue to provide the best solutions toits Customers and a service of excellence, aimed at fully satisfying their needs.

ACTIVOBANKThe strategic priorities of ActivoBank, in 2010, involved the renewal of its valueproposal and the resulting increase of its Customer base. In a difficultenvironment, ActivoBank confirmed its status as an innovative bank bysurprising the market with the launch of a new value proposal based onfinancial ser vices of a more current nature, directed primarily at thetransactional needs of its Customers.This commitment to modernisation andrenewal complements and enhances the pillar of specialised services, focusing oninvestment solutions, which has long characterised ActivoBank.

This new banking concept involved the launch of a new image, a new productoffering and new service and distribution channels, directed at a specific group ofurban Customers, who are young in spirit, intensive users of new communicationtechnologies and who favour a banking relationship based on simplicity, transparency,trust, innovation and accessibility.This value proposition is reflected in the brand’s signature:“simplify” – a Bank thought out to the very last detail to simplify the day-to-day of its Customers.

To bring this renewed and more extensive proposition to fruition, a series of initiatives have been implementedsince March 2010, with an emphasis on the:

Launch of an “Affiliates” programme to attract Customers and forward requests for servicing;

Development of a new easy-to-use website that is fast, intuitive and reliable;

NUMBER OF DIRECT BANKING OPERATIONSThousands

19,788

5,931

2010

17,984

12,775

2009

15,531

11,082

2008

Individual (Internet, mobileand call center)

Corporate (Internet)

13,857

5,209

4,449


SEGMENTAL REPORTING

119

120

Launch of an innovative application for smartphones that allows the main banking operations to be carried out,such as: checking accounts, transfers, payments, recharging cards, opening savings accounts, demobilising savingsand topping up mobile phones;

Reinforcement of the commitment to provide timely and up-to-date information on financial markets and tocontribute towards financial literacy, such as investment newsletters, which discuss market news, investmentconcepts and personal finances, as well as the participation in “Infovalor 2010 – Savings and Investment Fair”,where the Bank was present with its own commercial information stand;

Simplification of operational processes, especially those that have a direct impact on Customers, such as accountopening and the possibility of delivery of debit cards on demand;

Introduction of a new paperless policy, exemplified by the delivery of all legal documentation in digital format,in legally admitted terms, at account opening and the price table and brochures available on the touchscreenmonitors of the branches;

Opening of four branches, three in Lisbon and one in Oporto, with an innovative design in addition to expandedofice hours, from 10:00 to 20:00, including saturdays;

Opening of a point of sale, with identical characteristics to those of the branches, at the Vodafone store inParque das Nações, in Lisbon, as a result of the partnership between the two companies;

Restructuring the product portfolio in order to make it more competitive, transparent, easy to understand,and to contract;

Adoption of the ActivoBank brand, using a new image and the endorsement of Millennium, capitalising on thevalues, reliability and credibility of BCP Group;

Launch of "Active Ideas", a programme to collect ideas from Employees of the bank, with 13 of the 165contributions having already been implemented;

Offer of six investment funds that include social responsibility criteria, known as "ethical funds", and of 13 fundsspecialised in the renewable energies, ecology, energy efficiency and climate change sectors. Of these 19 funds, 13had subscriptions, in December 2010,of a total amount of about 1.5 million euros, representing 2% of the total fundsportfolio.

As a result of these measures, and in spite of the repositioning of theoperation having only taken place on 18 March 2010, the Bank increased itsactive Customer base in 2010 by about 12%, recovering its capacity toattract new Customers.

In 2011, activity will remain focused on increasing the Customer base. Inaddition to this growth objective, ActivoBank will also strengthen itsdevelopment of the investment area, implement measures to attractcustomer funds and focus on a service of excellence for Customers. Toconsolidate and support this value proposition, a series of initiatives will bedeveloped, with emphasis on the:

Growth and consolidation of the commercial network through, for example, theexpansion of the“Affiliates”programme;

Continuation of the simplification of operating processes, guaranteeing theexcellence of Customer service;

Entry into new business areas, with emphasis on those directed at investorCustomers;

Consolidation of the commitment to the Mobile channel, through the launch of new applications that extendthe range of banking operations available;

Launch of new products in order to meet a number of identified Customer needs;

Introduction of improvements to the renewed website, with a specific focus on the investment component.

CUSTOMERS AND ACTIVECUSTOMERSUnits

Nr. of Customers

Nr. of active Customers

2008

17,16115,901

2010

17,15918,712

2009

15,31816,335


COMPANIES BANKINGAND SPECIALISED CREDIT

The Corporate Banking & Sprecialised Credit business area includes the Specialised Credit and the Real EstateBusiness, which is transversal to all segments that comprehend the activity in Portugal.

The Companies segment, in Portugal, covers the financial needs of companies with an annual turnover between7.5 million euros and 100 million euros, and focuses on innovation, offering a wide range of traditional bankingproducts complemented by specialised financing.Within the scope of the cross-selling strategy, the Companiessegment also acts as a distribution channel for financial products and services of the Millennium bcp business areasas a whole.

The Companies segment in Portugal posted a net contribution of 7.5 million euros in 2010, compared with a netcontribution of 35.9 million euros in 2009.The performance of this segment was determined by higher impairmentcharges, despite the increase in operating income.

Other net income increased 41.5% from 2009, supported by the offer to Customers of adequated financialproducts and services and that provide the generation of fees, highlighting the favourable performance ofcommissions related to services of financial investment, direct credit and credit by signature, as a result of thestrategy to reinforce client relationships and regular and systematic monitoring of Customer activity. Highlightsinclude the implementation of the program “Ainda Mais Próximo dos Clientes” (“Even Closer to Customers”).Net interest income on deposits registered a reduction, influenced by the decrease in spreads in operations withCustomers, as the volume effect was positive, simultaneously benefiting from the effect on pricing alignment onloan operations, aiming to reflect the cost of risk and refinancing to new operations with Customers.

The increase in impairment charges recorded in 2010, compared with the amount booked in 2009, resultedfrom reinforcing the coverage of non-performing loans, mostly influenced by the adverse economic and financialframework in 2010.

The performance in total customer funds reflects the performance of debt securities, as customer deposits, as aresult of the strategy to further increase customer funds, rose by 1.7%.

Loans to customers fell 6.5% to 10,024 million euros as at 31 December 2010, compared to 10,717 million eurosposted on the same date in 2009,determined by the reduction in national currency loans,commercial paper and factoring.

Million euros

31 Dec. 10 31 Dec. 09 Change % ‘10/‘09


259.3 248.7 4.3%

Operating costs 60.1 57.9 3.8%Impairment 189.0 141.9 33.2%Contribution before income taxes 10.2 48.8 -79.2%


SUMMARY OF INDICATORSAllocated capital 647 659Return on allocated capital 1.2% 5.4%Risk weighted assets 9,958 10,134Cost to income ratio 23.2% 23.3%

Loans to customers 10,024 10,717 -6.5%Total customer funds (1) 2,982 3,080 -3.2%

Note: Loans to customers and customer funds as monthly average balances.(1) Includes Interfundos’ Total customer funds.


SEGMENTAL REPORTING

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122

COMPANIES NETWORKIn view of the adverse economic environment in 2010, the main priorities for action of the Companies Network,in the previous year, consisted of the following:

Commercial gap strict management, focusing simultaneously on increasing customer funds and on strictmanagement of loans to customers, involving a more rigorous selection of projects and strengthening collateral;

Focus on profitability, both in terms of new transactions and current portfolio, adjusting the interest rates appliedto the associated risk and increased funding costs, while increasing related commissions;

Closer monitoring of Corporate Customers activity, aiming to, on the one hand, identify new businessopportunities and, on the other hand, detect any signs of difficulty, with a view to defining value generatingsolutions and avoiding defaults or impairment;

Support to SME and companies which direct their businesses to exports.

The following initiatives implemented in 2010 are worth highlighting:

Participation in several business activity support initiatives launched by the Portuguese State, with emphasison the various PME Investe lines and lines supporting the Agricultural and Tourism sectors. Within thescope of the PME Investe lines, in 2010, Millennium bcp contracted 5,401 new operations associated withthe various lines totalling 393 million euros, with special relevance to micro and small businesses supportin which about 4,676 transactions worth approximately 140 million euros were approved;

Continued to foster the allocation of new investment projects to investment support lines contracted with theEuropean Investment Bank, with six new projects included in 2010 totalling approximately 26 million euros;

A Protocol of Cooperation was celebrated with ADENE – Energy Agency, aiming to boost the solarenergy sector, the manufacturing and installation of thermal solar panels in Portugal. In this regard, theBank provides support to potential beneficiaries in submitting applications to the non-repayable grantsolutions of the incentive schemes under the National Strategic Reference Framework, with 44 applicationshaving been forwarded for approval;

A medium/long-term credit line was made available, at a much lower interest rate than the practiced for similaroperations, to support damages repair caused by the storms on Madeira island, directed at companies andentrepreneurs trading under their own name, with a total of 11 operations in the amount of 820 thousand euroshaving been approved;

Within the scope of the Early Stages Credit Line, set up through a protocol established with the MutualGuarantee Societies (MGS) under the FINICIA Programme of IAPMEI, aimed at supporting entrepreneurshipby financing investment projects presented by companies or entrepreneurs trading under their ownname with less than three years of activity, Millennium bcp has financed 93 operations in a total amount of6.7 million euros;

A protocol was celebrated between the Bank, the Employment and ProfessionalTraining Institute (IEFP) andthe Mutual Guarantee Societies (MGS) for credit lines amounting 100 million euros, to support companiescreated by unemployed people, resulting in jobs creation and boosting the local economy.Within the scopeof the Microinvest Line, 12 operations in a total amount of 177 million euros were financed and of theInvest+ Line 65 operations totalling 3.7 million euros were contracted;

Implementation of joint actions with the Retail Network, aimed at bolstering the relationship between the Bankand companies, fostering the attraction of new Customers among the employees of said companies;


Launch of the Documentary Operations service on Millennium bcp Companies portal, in the internationaloption, allowing companies involved in international business – exports or imports – to request, through theportal, credit facilities and documentary remittances, consult current operations and request changes todocumentary transactions;

Approval for the setting up of an Iberian Companies Centre in Lisbon, within the scope of cross-border/Iberianbusiness development with Banco Sabadell, which will be responsible for monitoring all Customerscurrently in Companies and Corporate Networks, as long as they reside or have a physical presence inPortugal and are mostly held by companies based in Spain.The objectives of this Centre are, among others,to optimise returns from the Iberian Customer base and strengthen the existing Iberian Customer base,increase market share in imports/exports flows to Spain and foster the factoring and confirming business,in order to obtain a significant market share in the business with Spain;

Launch of two new innovative services – Payment of Taxes/DUC by Batch and Payment of ATM Services byBatch – exclusively available on the companies portal,“corp.millenniumbcp.pt”, whose main features are enablingcompanies to pay for DUC/ATM Services using a single file with multiple instructions (as an alternative toindividual payment) and to schedule payments for a future date;

Extension of the scope of the Digital Release Notes Service to cover more Bank products and services, withimprovements having been implemented in the collection and filing of digital release notes available on thecompanies’ portal;

Reformulation of the Companies Newsletter, in order to better meet the needs – as identified in the surveysconducted – of Millennium bcp’s Customers;

Participation in some events, in cooperation with the International Division and the Chambers of Commerce,aimed at strengthening Customers relationship and fostering the presentation of business opportunities inother markets, with emphasis on the“Africa Forum” due to its interconnection with potential American investorsin African countries with whom Portugal has close ties;

Partnerships with organisations that support internationalisation and export were reinforced through theparticipation in seminars focusing on markets, business opportunities and investment for Group’s Customers.

For 2011, the adverse and challenging environment is expected to continue in most sectors. In this scenario, theaction strategy of the Companies Network will focus on closely monitoring Customers, offering a multitude ofbusiness solutions and strict management of risk and impairments, according to the following aspects:

Proximity: integrated programme of visits to Customers, with a concrete plan of contacts and meetings to beheld with each one, in accordance with their priority;

Commercial Approach: focus on liquidity through customer fund acquisition, the integration of end-to-endsolutions involving suppliers and business Customers and attracting internal Stakeholders, such as Employees;

Risk and Impairments: focus on the preventive analysis of business activity, in an integrated approach with theCredit Department and the Specialised Recovery Department;

Trade Finance: focus on supporting companies with a strong product export component, with diversifiedsupport solutions and centralising their commercial relationship with Millennium bcp as the “Exporters' Bank”;

Cross Networking: encouraging Customer’s involvement as a whole, through the inclusion of itsStakeholders in Bank’s business (Employees, Customers and Suppliers, by actively recommending the Bank).


SEGMENTAL REPORTING

123

124

MICROCREDITMillennium bcp Microcredit Autonomous Network remains a nationalbenchmark in microcredit sector, participating and being involved in numerouspromotions and other informational events.The good business monitoring anddevelopment practices in this sector are recognised in Europe, with the Bankhaving been invited to join the Board of the European Microfinance Network(EMN), an organisation of which it is a corporate member.

In 2010, there was a decrease of almost 20% relative to 2009 in terms of thenumber of proposals submitted. In terms of production (including NationalAssociation of Right for Credit and Autonomous Region of Azores protocols),237 new operations were implemented, with total loans amounting to2.2 million euros,which has helped to create 320 jobs. Loans volume granted tothe 970 operations as at 31 December 2010 reached 8.9 million euros.

Between 1999 and 2010 the total amount loaned came to 16.5 million eurosto 2,055 entrepreneurs, with a total of 3,195 jobs having been crerated.

Taking into account the present financial and social crisis,which also explains thereduction of the number of entrepreneurs submitting proposals, the monitoringof default and pre-default situations was intensified, in order to maximize themitigation of overdue loans.

The publicity of the microcredit product and the partnerships set up are essential for the information to reach potentialentrepreneurs.As such, a proactive conduct with numerous initiatives was maintained, with emphasis on:

Launching a microcredit page on Facebook, with the aim of reaching organisations and institutions engaged insocial action and their users in an easer way and, at the same time, creating a discussion forum to encouragemicro-entrepreneurs;

Holding of 544 meetings with institutions, out of which 220 were with the main Private Institutions of SocialSolidarity (IPSS), which actively work with citizens claiming Social Benefits;

Signing of protocols with Portuguese Red Cross – Faro Delegation,Amadora Intercultural School of Professionsand Sport and Youth Foundation with the aim of bringing microcredit to young people also, supporting themin their transition from university to labour market.This last protocol is the result of a joint partnership betweenMillennium bcp, theYouth Foundation, the Portuguese Catholic University, the University of Aveiro and ADDICT– Agency for the Development of Creative Industries, S. Brás de Alportel City Hall and the Cultural andYouthAssociation BatotoYetu Portugal.

Within the framework of institutional partnerships and collaborations, microcredit hosted, for the first time inPortugal, the exchange visit promoted by European Microfinance Network (EMN). In 2010, it joined the EMNworking group on the analysis of Microfinance growth in Europe, having already participated in the first meeting.

In partnership with the Direct Banking Department, a challenge was launched on the Bank’s website, invitinghandicapped entrepreneurs to submit a microcredit project.The selected idea will receive an award of 5,000 euros.This action was also disseminated to the most relevant institutions that support people with disabilities, withparticular emphasis on the APD – Portuguese Association of Disabled People, which has provided the use of itsnewspaper as an informational channel for the competition (about 23,000 copies).

For 2011, the strategic focus will continue to be on fostering the Millennium bcp microcredit among city halls,parishes and local entities, which work with the socially excluded populations, that have difficulty in accessinginformation.

2008

5,959

2009

6,566

2010

6,742359 1,045 1,300

885

1,116970

Number of operations

Capital in debt

Credit due capital

MICROCREDIT LOAN PORTFOLIOActivity in PortugalThousand euros


SPECIALISED CREDITIn 2010, the strategic priorities of the Specialised Credit Department focusedon small and medium sized businesses, particularly in lower risk Customers,which present cross-selling opportunities, and on the financing of goods inactive secondary markets and with shorter maturities. It is also important tohighlight the better pricing adjustment, influenced by funding cost increaseand by the clear differentiation of good risks.

For the renting product offer, as an integral part of the “Auto Solution”, theBank entered into a partnership agreement with the company SGaldAutomotive, a fleet management company that is part of Société GeneraleGroup. Portfolio management of contracts under way, as at May 2010,remains with the former partner (GE Capital).

The evolution of the Specialised Credit business continued to be stronglyinfluenced by economic activity developments and the contraction ofinvestment, such that the overall value of new production of Leasing andLong-Term Rental (LTR) decreased from the previous year, reaching about139 million euros in 2010, corresponding to a decrease of 19.1% whencompared to 2009. However, motor loan products performed positively withan increase of 22.1%, with the Bank maintaining its leadership in this segment,with a market share of around 17%, according to the latest data availablefrom banking operators.With regards to equipment leasing, business volumesgrowth was below market, reflecting the reduction of investment and effortsto adjust the price paid, which resulted in a reduction of the Bank’s share to9%.A similar situation occurred in the real estate leasing sector, with Bank'sshare standing at around 18%. Leasing and LTR loan por tfolio stood at4.1 billion euros in 2010, declining 7% relative to the previous year.

In 2010, the factoring business registered a performance consistent withmarket’s trend for liquidity, with the Bank's market share standing at around18%, reflecting a significant increase in profitability.

The following initiatives implemented in 2010 are also worth highlighting:

The launch, in June 2010,of a comprehensive integrated training programme,aimed not only at improving knowledge within the more specific area ofspecialised credit, but also in technical areas associated with finance,accounting and market risks, including general behavioural areas, leadingto the certification of Specialised Credit managers;

Continuation of efforts to streamline the Specialised Credit Department, with further integration betweenthe commercial areas of leasing and factoring, as well as the development and introduction of operationalimprovements for dealing with factoring operations, allowing, on the one hand, to be a single representativefor the leasing, renting and factoring businesses and, on the other hand, to significantly improve service andsatisfaction levels, namely in factoring;

Maintenance of campaigns and actions to boost sales, as a way to promote the financing of vehicle purchaseamong Retail Customers, as a result of partnerships established with car dealers and by combining the offer ofprice discounts and other offers with special financing conditions, integrating the offer of renting and of allmotor loan products.

Factoring

Leasing

SPECIALIZED CREDIT PORTFOLIOThousand euros

5,366

1,224

2010

5,636

4,404

2009

6,075

4,717

2008

4,141

1,2331,357

LEASING PORTFOLIOMillion euros

4,141

2,780

2010

4,404

1,414

2009

4,717

1,677

2008

EquipmentLong-term rentingReal estate

2,8872,925

115103 88

1,273


SEGMENTAL REPORTING

125

126

In 2011, the activity of the Specialised Credit Department will mainly focus on supporting investment andbusiness activity, with emphasis on the business of small and medium sized Customers with a good risk profile;on the maintenance of the integrated approach between leasing and factoring areas, seeking to preserve ahigh level of monitoring of Customer needs and quality of the service provided; and the focus on monitoringand control of overdue loans, reinforcing the policy of discipline in the area of credit risk and correct pricing,adjusted to the risk profile of the Customer, the maturity and level of protection for operations, as well as tothe evolution of funding costs.

REAL ESTATE BUSINESSIn the last quarter of 2010, the Bank reorganised the real estate business with the aim of increasing efficiency,resulting from greater integration of all processes associated with real estate, having created the Real EstateBusiness Department.This Department has incorporated the Credit units for Property Development, PropertyManagement, Real Estate Project Management and Real Estate Sales, having defined the following action plans:

Property Development: strengthening of adequate credit operationspricing to their respective risk, along with emphasis on their liquidity riskand on a control policy of the operational and financial risk of outstandingloans, contributing to improve service levels and mitigation of operationalrisk;

Property Management: consolidation of the organisational structure bycreating three functional areas of action (Property Management,MaintenanceTechnical and Administrative Technical), aimed at reducing the time thatreal estate remains within the scope of the Bank. Functional improvementswere also introduced at the application level of property management, inparticular in the cases of payments and receipts, especially rent andcondominiums, the integration of various computer applications to supportbusiness and property management having been completed. Regardingproperty legalisation, focus was maintained on rapid adjustment of thosereal estate assets acquired as a result of credit recovery processes, allowingtheir speedy disposal;

Real Estate Sales:business focused exclusively on the sale of repossessed assets,due to leasing resolution, judicial enforcement or decommissioning fromexploitation. Given the real estate assets increase in portfolio, the sales policywas reinforced with an emphasis on the organisation of various auctions andresorting to “campaigns” and “batch” sales conducted by real estate agents.

During 2010, 187 new contracts worth 293.6 million euros were entered into, based on 314 proposalscorresponding to 518.2 million euros. Property development loans portfolio balance reached a value of2,763 million euros, corresponding to a reduction of 2.3% relative to 2009. Net interest income margin of propertydevelopment loans, bearing in mind the profound changes in market conditions, particularly with regard to funding,decreased by 3 b.p. compared to 2009. It should also be noted that the commercial goal for 2010, with respectto the number of properties sold, was superseded, and the value of sales remained in line with what had beenbudgeted.

For 2011, the strategic priorities of the Real Estate Business Department involve making changes to the IT platformsupporting the property development loan process, creating conditions for efficency gains and better coordinationwith the other business units involved; strengthening risk control methodologies, namely the early detection ofwarning signs, as well as greater proximity to undertakings in progress, via more frequent contact with Customers,in a search for ongoing improvement in service levels; and superseding, in the real estate sales area, the goals setfor 2010, with specific emphasis on the use of direct sales channels, such as the Internet, as well as the intensificationof cooperation with Bank’s commercial areas.

Portfolio interest Rate

REAL ESTATE DEVELOPMENTCREDIT PORTFOLIOMillion euros

2008

2,820

2009

2,827

2010

2,763

1.26%

1.73% 1.70%


INTERFUNDOSThe activity of the Closed Private Subscription Investment Funds industry, managed by Interfundos, was severelyaffected by a number of important factors over the course of 2010. From the beginning of the year it wasaffected by the continuing difficult economic environment and the deterioration of access to credit by themajority of economic agents. Mortgage loans in particular saw tightened eligibility requirements for families andproperty developers as a result of the structural failure of equity in most of their projects, together with themaintenance of sales at very low levels (particularly in residential tourism projects), revealing difficulties indeveloping and streamlining their business. Furthermore, there were significant changes within the applicablefiscal framework. The positive changes, which also occurred in the Legal System for Urbanization andConstruction, aimed at increasing its simplicity, as well as the long announced but not yet fully regulated RealEstate Investment Companies, appear to be clearly insufficient to strengthen and improve business at this stage.

In 2010, in an adverse environment, Interfundos maintained market leadership. On 31 December 2010,Interfundos held a market share in the management of Closed Private Subscription Investment Funds of 16.8%,managing 48 investment funds, totalling 1,123 million euros in assets under management in December 2010, adecrease of 6.86% compared to the same period of the previous year.

During the first half of 2010, Interfundos reorganized its operating structure by integrating a set of responsibilitiesthat up to that date had been part of the Asset Management area.

In 2011, the real estate market is expected to remain subdued, as a result of the difficulties affecting the activityof most main economic agents, an environment of persisting uncertainty, combined with an unfavourableregulatory and tax framework.The expected entry into force of a proposed law on the tax assessment of realestate investment funds points to new and profound changes in legal framework and will have significant impacton funds managed by Interfundos. Uncertainty about the legal framework for the rehabilitation and upgradingof urban roads still contributes to the delayed renewal of real estate of uninhabited urban centres.Notwithstanding this fact, the Urban Renewal Funds embody a number of tax incentives that the legislator hasdecided to allocate to all investors who contribute to the development of urban heritage centres, with notabletax effects.These constitute, together with the Housing Rental Investment Funds, if there is a greater dynamismat market level for housing rental, a window of opportunity that Interfundos seeks to take advantage of in 2011.Finally, along with the reintroduction of tax benefits regarding IMT and IMI, allocated through the 2011 StateBudget, for Closed Private Subscription Investment Funds, the tax system for Real Estate Investment Companieswas defined, which could constitute an important engine in the real estate area and encourage the emergenceof a new business area for Management Companies.


SEGMENTAL REPORTING

127

128

CORPORATE & INVESTMENT BANKING

The Corporate & Investment Banking segment includes: i) the Corporate network in Portugal, targeting corporate andinstitutional Customers with an annual turnover in excess of 100 million euros, providing a complete range of value-added products and services; ii) the Investment Banking unit,which specialises in capital markets,providing strategic andfinancial advisory, specialised financial services – project finance, corporate finance, securities brokerage and equityresearch – as well as structuring risk-hedging derivatives products and iii) the activity of the Bank's International Division.

The Corporate & Investment Banking segment showed a net contribution of 77.2 million euros in 2010, compared to148.6 million euros posted in the same period in 2009.The uncertainty surrounding the public finances of several EuroZone countries led to an increase in risk premiums and a reduction in market liquidity and significantly affected theperformance of this segment.

In this context, the net contribution of the Corporate & Investment Banking segment was determined by thestrengthening of impairment charges in the Corporate network. Net interest income, in turn, was constrained by anunfavourable interest rate effect, resulting from lower spreads on deposits,despite the focus on profitability by improvingthe process of repricing, to reflect the cost of risk and liquidity.

The decrease in other net income dues to lower results from financial operations, despite the increase in commissionsin the Corporate network, in line with the strategic priority of focusing on profitability through a systematic collectionof fees, especially commissions associated with credit by signature, commercial paper, financial services and demanddeposits. In the activities undertaken by the Investment Banking segment it is worth noting the significant position ofthe Bank's brokerage activity on Euronext Lisbon, the pace set for organising and structuring commercial paperprogrammes, the several projects for corporate finance and equity capital markets and the active role in structuredfinance and project finance operations.

In terms of customer funds and loans to customers, and in accordance with the strategic priority of deleveraging, in 2010,there was a reduction in new loan operations, while the effort to further increase customer funds was reinforced.As a result, total customer funds increased 0.8% to 11,236 million euros as at 31 December 2010, compared with11,150 million euros as at 31 December 2009. Loans to customers amounted to 13,245 million euros at the end ofDecember 2010, increasing 2.2% compared to 12,962 million euros recorded at the end of December 2009,benefitingfrom the performance in national currency loans and commercial paper.

Million euros

31 Dec.10 31 Dec. 09 Change % ‘10/‘09

PROFIT AND LOSS ACCOUNTNet interest income 198.3 209.4 -5.3%Other net income 159.8 201.9 -20.9%

358.1 411.3 -12.9%

Operating costs 74.9 73.2 2.3%Impairment 178.2 135.1 31.9%Contribution before income taxes 105.0 203.0 -48.3%


SUMMARY OF INDICATORSAllocated capital 1,045 947Return on allocated capital 7.4% 15.7%Risk weighted asset 16,082 14,569Cost to income ratio 20.9% 17.8%

Loans to customers 13,245 12,962 2.2%Total customer funds 11,236 11,150 0.8%

Note: loans to customers and customer funds in terms of average monthly balances.


CORPORATE NETWORKIn 2010, business activities in Portugal continued taking place in an environment characterised by financialinstitutions difficulties on accessing to international financial markets. In this context, the performance of theCorporate Network was characterised by:

Rigorous management of the commercial gap, focusing simultaneously on raising funds and prudent loansmanagement, with greater selectivity of supported projects and strengthened mitigation;

Focus on profitability, both in terms of new business and in the current portfolio, adjusting interest rates to riskand to the increased cost of funding and undertaking the systematic collection of the associated commissions;

Even closer monitoring of companies business, aimed at identifying new business opportunities and preventivedetection of any signs of possible difficulties, in order to define potential solutions of value and the occurrenceof defaults or impairments.

With a view to the implementation of business strategy, the following initiatives were undertaken in 2010:

In the area of the promotion of trade finance, the creation of two new Business Support Lines forTrade Finance,amounting to 300 million euros. For transactions placed by 31 December 2011, this initiative aims to encourageinvestment by supporting national exports of consumer goods (e.g., food products, footwear, clothing), as wellas investments to support national exports, in the form of credit to the importer with the support of COSECcredit insurance;

Sponsorship of the 4th Annual Conference on Financial Management, Treasury and Risk for Companies inPortugal, organised by EuroFinance, the world leader in organising events in this area.Attended by some of themost important Portuguese companies, the issues addressed related to macroeconomic developments, financingalternatives, improved cash flow, current assets and liquidity structures. Furthermore, presentations were alsomade regarding investment and financing in Angola and Brazil, hedging strategies, SEPA and the future of thepayments system.

Since the economic and financial difficulties are expected to continue in most sectors in 2011, the action strategy ofthe Corporate Network will be to continue to closely monitor Customer activity, carefully manage risk and impairmentsand also to maintain focus, in terms of business approach, on liquidity by raising treasury funds; on preventive analysisof companies’activity,on an integrated perspective with Loan Department; and on supporting companies with a strongexport component in their products.With diversified support solutions and by centralising their commercial relationshipon Millennium bcp as the “Exporters’ Bank”.

INVESTMENT BANKINGIn the Investment Banking area, the Bank maintained a leading position in brokerage services on Euronext Lisbonin 2010, with a market share of around 6%.The number and activity of Customers with direct access to thetrading room, domestic institutional and foreign, as well as large private investors, has been increasing significantly.The amount invested in certificates grew by more than 23% this year and Customer base increased at an evenhigher rate, as a result of wider dissemination and understanding of the benefits of this financial instrument toinvestors in shares. Certificates were listed on Euronext Lisbon so as to make this offer available to all Portugueseinvestors, whether Customers of the Bank or not.The Banks warrants program continued to be a favourite forlocal investors, together with those of two international institutions.

The worsening instability in debt markets, triggered by the climate of uncertainty surrounding the public financesof several Euro Zone countries, led to a significant increase in risk premiums and a sharp reduction in marketliquidity in the second quarter of the year.Therefore, the major bond issues were made in the first half of the year.It is wor th noting Millennium bpc’s role in the organization and issue of EDP – Energias de Por tugal, S.A.(500 million euros in private placement format), as well as that of Controliveste (issue of bonds, convertible toPortugalTelecom, SGPS, S.A. shares, amounting to 224 million euros, guaranteed by Millennium bcp) and BenficaSAD (40 million euros, through a Public Subscription Offer). The organization and issue of commercial paperprograms, although also affected by adverse market conditions, remained fairly active throughout the year. It isworth noting Millennium bcp’s involvement in a number of new programs for major Portuguese companies:EP – Roads of Portugal, S.A. (Estradas de Portugal, S.A.) (250 million euros), Brisa (50 million euros), Refer(150 million euros), Secil (75 million euros),Amorim Investimentos e Participações (40 million euros),Group Opway(50 million euros) and Galp Energia (50 million euros).


SEGMENTAL REPORTING

129

130

In view of the Bank’s objective of expanding its portfolio of assets eligible for refinancing operations, some of theseprograms have been endowed with features that ensure the eligibility of their issues as ECB collateral.The structureand assembly operations for the Bank itself was, to a large extent, also focused on that goal, with the completionof two securitization transactions involving, respectively, a portfolio of real estate, automotive and equipmentleasing amounting to 1.2 billion euros (called “Tagus Leasing No.1”) and a portfolio of current accounts andcontracted overdrafts in the approximate amount of 2.7 billion euros (called “Caravela SME No.2”). Still withinthe same scope, during 2010, there were three issues of mortgage bonds amounting to 3.75 billion euros.Twoissues of senior unsecured debt were placed to institutional investors with the aggregate amount of 1,050 million euros,which took place under the “Euro Note Program of Millennium bcp”.The setting up of interest rate productsdistributed by Bank’s Retail networks gained increased visibility and importance as a tool for stable customerfunds acquisition, with the total amount reaching more than 2.4 billion euros.The offer of more sophisticatedstructured products was mainly directed to private banking Customers, with emphasis on equity linked structures.Taking advantage of widening credit spreads, several issues were structured using indexed credit linked to variousunderlying sovereign risk, corporate institutional and reference credit.

Despite the difficulties related to the macroeconomic environment, positive results continued with the sale oftreasury products, both regarding cash (foreign exchange spot and forward trading, investments and short-termdebt at fixed rate) and interest rate, exchange rate and commodities hedging derivatives.

In the corporate finance area, the Bank participated in several relevant projects.The role played as “FinancialAdvisor”of Cimpor – Cimentos de Portugal, as part of the takeover bid launched by CSN – Companhia SiderúrgicaNacional, is of particular interest.At the same time, the Bank continued to develop several projects of advisory toCustomers in the valuations segment, as well as mergers and acquisitions, with some of these operations stillongoing.

In the area of equity capital markets, the Bank was “Global Coordinator” of the Tender Offer of Teixeira Duarte– Engineering and Construction, S.A., launched byTeixeira Duarte, S.A.The purpose of this transaction relates tothe objective of achieving a corporate partnership restructuring process inTeixeira Duarte.The Bank was “JointGlobal Coordinator” in the organization and set up of the Public Subscription Offer of VAA – Vista AlegreAtlantis, SGPS, S.A., and also “Joint Coordinator” of the Offers of Sporting SAD, integrated within –the financialrestructuring process of SCP Group, which consisted of a capital increase and issue of Convertible MandatorySecurities (VMOC), convertible into shares of Sporting SAD. In the latter operation, the Bank was also mandatedto assure the guarantee of placing the joint issue of theVMOC of Sporting SAD.

In 2010, the Bank maintained an active role in structured finance transactions, with notable contributions such as“Mandated Lead Arranger & Agent” in the following operations: long-term loan amounting to 81.5 million eurosto finance the Shareholder structure reorganization of the Salvador Caetano Group and a syndicated loan of168.5 million euros for Sport TV, to refinance existing debt.The Bank led and participated in several financialrestructuring transactions, including syndicated transactions, most notably Holmes Place and La Seda de Barcelona(loans volume involved of 64.5 million euros).The Bank continued the follow-up, including acting as agent, forstructured finance transactions where the loans amounted to 1.3 billion euros (about 67% of the total portfolio).

In the area of project finance, the Bank participated in many operations of note at national and internationallevels, including the following: “Mandated Lead Arranger” in the organization and structuring of the financingoperation, amounting to 467 million euros, of a portfolio of 12 wind farms in Portugal, called “ENEOP 2”, with atotal installed capacity of 480 MW;“Financial Advisor” of the concessionaire ELOS – High Speed Links, S.A., wherethe Bank is one of the Shareholders, and “Mandated Lead Arranger” in the financing of the project finance toconstruct and to operate the section between Poceirão and Caia of the High Speed Railway; transaction forcredit assignment on EP – Roads of Portugal, S.A., by Mafratlântico for a syndicate co-led by Millennium bcp,totalling over 200 million euros; the “Financial Advisory Mandate” for EDP Renováveis (RelaxWind Park I) for thewind farm Margonin, with a capacity of 120 MW in operation in Poland, being the largest funding in the renewableenergy sector that has occurred in Poland, with Bank Millennium SA (Poland) acting as one of the “Mandated LeadArrangers”; “Financial Advisory Mandate” for EIH – Energy and Innovation Holding, S.A. to develop a project ofa Combined Cycle Centres for Natural Gas to be built in the Soyo region, Zaire province in Northern Angola,in partnership with another financial institution of Angolan origin.


As an entity adhering to the Equator’s Principles, Millennium bcp undertakes to ensure that projects funded underproject finance are developed in a socially responsible manner and with respect for good environmentalmanagement practices.

In historical terms, the project finance loan portfolio is structured as follows:

For 2011, the strategic guidelines for the area of Investment Banking are based on maintaining focus on productsand structures that allow for the growth and diversification of Bank financing sources; on maintaining its positionas a reference institution in the national market and on continued international expansion of the activity, namelythrough the provision of advisory services in project and/or corporate finance, preferably in places whereMillennium bcp is already present, and also exploring potential opportunities in the strategic axis China/Macao –

Beginning in 2010, banks adhering to the Equator’s Principles have widened the scope of application of financialadvisory work principles. Hence, in accordance with this, Millennium bcp has included in advisory mandates aclause in which it undertakes to orientate the work and to develop with their Customers respect for the abovementioned Principles.

In 2010, following the criteria applied by the International Finance Corporation, the financial arm of the WorldBank Group, which led to the creation of the Equator’s Principles and, in the case of Margonin, also by the specificcriteria of the European Bank for Reconstruction and Development (EBRD), four projects were evaluated, threeclassified as level B, which implies a limited social and environmental impact and one project ranked as level A,which implies a high social and environmental impact.

Million euros

Millennium bcpparticipation

ClassificationProject

MARGONIN (POLAND)Portfolio of two wind farms with an installed capacity of 120 MW. A Financial AdviceENEOP 2 (PORTUGAL)Portfolio of 23 wind farms with an installed capacity of 480 MW. B 43ELOS (PORTUGAL)Grant of railway infrastructure(high-speed Poceirão-Caia) B 49MAFRATLÂNTICO (PORTUGAL)Refinancing of road infrastructure(Highway A21Ericeira-Mafra) B 15(1)

PROJECT FINANCE OPERATIONSAPPROVED IN 2010

PROJECT FINANCE PORTFOLIO SINCE 2006

1

41

1

41

4,370

27

High social and environmental risk

Limited social and environmental risk

Low social and environmental risk

PROJECTS FINANCED SINCE 2006 MILLENNIUM BCP PARTICIPATION(Million euros)

CLASSIFICATION ACCORDINGTO EQUATOR’S PRINCIPLES

A

B

C

(1) Finance increase.


SEGMENTAL REPORTING

131

132

renováveis

Relax Wind Park IWind Farm in Poland

Financial Advisor

2010

Project Finance

PLN 535 Million

Wheat FutureContract (CBOT)

Issuer

2010

€ 15 Million

Certificates

GuaranteedExchangeable Bonds

€ 224 Million

Financial Advisor & MandatedLead Arranger

2010

Project Finance

€ 780 Million

Millennium bcp Technical EU Index

Issuer

2010

€ 33 Million

Certificates

Bond IssuePrivate Placement

€ 500 Million

Financial Advisor

Financial Advisor of CIMPORin CNS’s tender offer

2010

€ 4,153 Million

Exchange OfferOf up to

Global Coordinator2010

132,119,201 sharesofTeixeira Duarte –

Engenharia e Construção, S.A.

Commercial Paper

€ 75 Million

ElOS – Ligação de AltaVelocidade, S.A.High Speed Rail Concession

Poceirão-Caia StretchLisbon-Madrid Link

2010

Joint Lead Manager

2010

Sole Lead Manager

2010

Sole Lead Manager

Portuguese speaking Africa – Europe; and close monitoring of the Clients and operations which are currently inportfolio.

INTERNATIONALThe International Department, together with theTreasury and Markets Department, has focused its strategy onthe attraction of new sources of funding for the Bank, becoming actively involved in the raising and maintenanceof lines and limits on money market operations and the sale of Bank debt.

This action was developed through roadshows, meetings and participation in international events, where about350 entities were contacted, not only in traditional markets of Europe and USA but also diversifying thecounterpart base of the Bank, through the exploration of networking opportunities in Africa, the Middle East andAsia.

Together with local and foreign institutions, the Bank negotiated financing for project finance transactions andleasing companies in the Group totalling 200 million euros.The institutional custody business developed positivelywith the increase of 1.3% to 111.5 billion euros of assets under custody, held by non-resident institutional investors,representing a market share of 48%.We also maintained commercial payments received compared with 2009.These represent 25% of the Portuguese market share.

Partnerships were strengthened with organisations to support internationalization and export throughparticipation in seminars focusing on markets, business opportunities and investment for the Group's Customers.

In 2011, the International Department will continue its action plan to promote the Bank and the country, alongwith current and potential counterparts, in order to diversify the Customer base and ensure success in achievingcross-border operations.


PRIVATE BANKING &ASSET MANAGEMENT

The Private Banking and Asset Management segment, for purposes of the geographical segments, comprisesthe Private Banking network in Portugal and subsidiary companies specialised in the asset management businessin Portugal. In terms of business segments, it also includes the activities of the Banque Privée BCP andMillennium bcp Bank & Trust.

The Private Banking & Asset Management segment, considering the geographical segmentation criteria, posted anet loss of 6.9 million euros in 2010, compared with a positive net contribution of 2.8 million euros in 2009.Thisevolution includes the decrease in net interest income, reflecting the reduction in both the business volumes andthe interest rates for customer funds and loans to customers, despite the effort to keep following the repricingprocess to reflect the cost of risk and liquidity.

The increase in other net income by 5.5% results from the Private Banking business in Portugal and is associatedwith the increase in commissions related to securities custodian and to credit by signature, following the reviewof pricing in terms of its adequacy to the Bank’s value proposition.

The decrease in impairment charges by 2.3% reflects the strategy followed in the management of the loanportfolio quality, including the strengthening of collaterals. Operating costs also showed a favourable evolutioncompared to 2009, evidencing reductions in other administrative costs related mainly with advisory services.

Total customer funds amounted to 5,804 million euros, maintaining the same level as at 31 December 2009,supported by the good performance in capitalisation products which partially offset the evolution of customerdeposits.

Loans to customers amounted to 1,391 million euros as at 31 December 2010, compared to 2,211 million eurosas at 31 December 2009, as a result of the reduction in loans to customers from Private Banking in Portugal.

Million euros

31 Dec.10 31 Dec. 09 Change % ‘10/‘09


42.1 58.6 -28.2%

Operating costs 31.5 33.8 -7.0%Impairment 20.4 20.9 -2.3%Gross contribution (9.8) 3.9 -

Income tax (2.9) 1.0 -Net contribution (6.9) 2.8 -

SUMMARY OF INDICATORSAllocated capital 63 82Return on allocated capital -11.0% 3.6%Risk weighted assets 975 1,266Cost to income ratio 74.8% 57.7%Loans to customers 1,391 2,211 -37.1%Total customer funds (1) 5,804 5,741 1.1%

Note: loans to customers and customer funds in terms of average monthly balances.(1) Excludes Interfundos’ total customer funds.


SEGMENTAL REPORTING

133

134

PRIVATE BANKINGThe restructuring of Private Banking was completed in 2010, consolidating structural changes in the model and theorganization of this business area. The implementation of the new business model had a direct impact in thecommercial, investment advisory and support areas, with the most visible elements being the following:

A new value proposition that strengthens the pillars of this business sector by introducing new principles foradaptation to the current economic and regulatory environment;

A set of management tools that enables teams to obtain qualitative and quantitative information on the tradeagenda, also giving them control mechanisms related to credit approval and orders execution;

An advisory model which improves business supervision, streamlining and monitoring the alignment ofCustomer portfolios compared to their risk profile, which is a distinguishing factor of this offer compared totraditional banks;

A new structure, the Investment Control Committee, responsible for transaction monitoring and control,analysis of asset concentration and the consistency of investment process;

A global segmenting of Customers in relation to their portfolios and investment profiles;

An intensive program of commercial stimulus that covers from the stage of attracting new Customers tomonitoring existing Customers, seeking to retain and increase share of wallet;

An optimized structure in terms of human resources,with greater empowerment, skills,more Investment Advisorsand the adaptation of the structure to support the new branch framework and sales personnel, thus enablingefficiency gains at costs level.Taking into account the need to ensure that implementation of this model andbusiness development are in accordance with its legal framework, Millennium bcp proceeded with acomprehensive legal review and validation of the whole business.

The broad lines of action for 2011 will focus on consolidating the advisory model as support for the new businessmodel, having as key requirements the level of consistent quality in financial advisory services, a regular reviewand monitoring of the portfolios and deviations between portfolio risk and Customer profiles. Greater disciplinein commercial activity, adjusting the number of contacts and the supply depending on the type of Customers,attracting new Customers and upgrading existing Customers in the Bank, served by operations from other privatebanking institutions. Fostering the use of alternative channels, especially homebanking.A new image will be adoptedfor the Private Banking segment. Also, to focus on marketing value-added products, particularly via enhancedmanagement mandates, which could provide a more predictable return to Customers and a strong contributionto improving the results.

ASSET MANAGEMENTThe Asset Management area incorporates the development of the mutualfunds management activities and of discretionary management business.The strategy adopted in 2010 was based on the adjustment of a variedrange of products and services, and focuses on diversification of investments,risk and terms, bearing in mind the needs of different investor profiles andimproving profitability.This objective was pursued in a year characterized byuncertainty regarding the recovery of many economies, the conditions oftheir financing and high volatility in financial markets. In this context, the localinvestment fund industry showed, in 2010, a significant reduction in assetsunder management, off-setting the 20% growth of 2009. During 2010, totalassets under management of the local mutual funds industry decreased by17.5% from 17.2 billion euros at the end of 2009 to 14.2 billion euros at theend of 2010.

ASSETS UNDER MANAGEMENTOn a comparable basisMillion euros

Real Estate FundsDiscretionary managementSicavSecurities funds

201020092008

2,9392,668 2,621

1,8901,643 1,358

333 261

349 395367 370

273

587

403


The total assets under management by investment funds managed byMillennium bcp Gestão de Activos declined from 1.6 billion euros at the endof 2009 to 1.4 billion euros at the end of 2010, -17.3%. Despite thesedevelopments and the lack of liquidity that involved the financial system,Millennium bcp Gestão de Activos has maintained its market share, whichstood at 9.55%. In the field of harmonized funds, which embody the core ofthe asset management industry, in particular mutual funds, Millennium bcpGestão de Activos recorded a 14.9% share. Millennium bcp Gestão deActivos also maintained leadership in a sector with high added-value funds,funds of funds, with a share of 57%.

Regarding management performance, on 31 December 2010, it is worthnoting the four Millennium funds that occupied first place in their respectiveperformance ranking since the beginning of the year:“Millennium Disponível”,“Millennium Obrigações Mundiais”,“Millennium Prestige Conservador” and“Millennium PrestigeValorização” and reaching second place in their classes“Millennium Acções Por tugal”, “Millennium Obrigações”, “MillenniumObrigações Europa” and “Millennium Prestige Moderado”.

The investment funds commercial activity grew in line with the commercial campaigns cycle of the Retail network’sbusiness plan. In each cycle, a basket of funds was selected and overall objectives were set for sales, as well asspecific objectives per branch.This methodology allowed a more effective placement of funds. To ensure thediversity of investment options in terms of assets and market coverage, the basket comprised treasury funds, fixedrate bonds and shares. In addition, from a standpoint of savings in the medium to long-term, which take advantageof tax benefits, the “Millennium PPR” funds have been part of the campaign the whole year. In this case, thecommercial activity focused on the promotion of monthly business investment plans as the best option for thegradual accumulation of a retirement supplement, which includes the chance of a lump sum investment beforethe end of the year.

The offer of funds was widened in 2010, with the launch, in April, of the new treasury fund “Millennium Liquidity”and, in August, the new Special Investment Fund (FEI) “Millennium III Extra Treasury”. Low risk funds, targetingconservative Customers, both joined the basket of funds selected for the respective business cycles.Additionally,we adjusted the commissioning of some funds (equity and variable rate bonds), in order to improve theircompetitiveness.

Between March and July, the Asset Management area participated with a representative speaker in Seminars onInvestment in Equity Markets in some major cities. Intended for Customers and Employees of the respectiveRetail network areas, the workshops provided an opportunity to highlight the Millennium Investment Funds asinstruments for investment in shares and to promote the Discretionary Management service.

Continued rationalization of the supply of investment funds and increasing the market share of Millennium bcpGestão de Activos is planned for 2011, through the launch of new investment funds, in the form of FEI. Themarketing of investment funds will also be promoted through the Bank’s website, taking into account the increasingimportance of the Internet as a preferred channel for Customers to search for information and to purchasegoods and services.The anticipation of new regulations being prepared by the European Union and trends in thebusiness of investment funds will remain as basic guidelines.

Internally and in relation to the management of securities investment funds, the structure of Millennium AssetManagement has been reinforced.The Investment Management unit was set up earlier this year and is nowresponsible for the management of treasury funds, the major bond funds, funds of funds and the FEI now beingmarketed.

BREAKDOWN OF SECURITIESFUNDSOn a comparable basisMillion euros

Treasury funds, fixed and variable rate

Funds of fundsMixed stock funds de acções mistosSpecial investment funds andretirement saving plans (PPR)

201020092008

1,890 1,643 1,358

17.3% 24.7%

22.4%21.6%

49.8%43.5%

26.4%

21.6%

43.5%

10.4% 10.2% 8.5%


SEGMENTAL REPORTING

135

136

In the area of Real Estate Investment Funds, the volume of assets under management, in December 2010, was403 million euros. Although considerably affected by the performance of various real estate sectors hit hard bythe economic and financial environment, this business area grew by 9.0% in comparison with December 2009.In a way that cuts across almost all sectors, 2010 was marked by the reduction of market profit rates, increasedunemployment and also by reduced demand.

The Real Estate Fund Portfolio AF, an open-ended accumulation fund, was particularly penalized by the difficultieshighlighted by the major sectors, particularly Retail, offices and industry/logistics.

Of the set of initiatives undertaken during 2010, it is worth noting the campaign for commercial placement ofthe Fund within the networks of Retail and Private Banking. On the other hand, and in order to adjust the criteriafor property market recovery, the funds management company started valuing the Fund assets based on annualassessments (it was previously evaluated every two years), anticipating regulations.At the end of the year, despiteadverse conditions, the Fund showed a 10.8% increase compared to the same period last year.

Millennium bcp Gestão de Activos will seek to develop initiatives in 2011, aimed at alleviating the main negativeeffects observed in 2010, to allow real estate funds to reach results in line with investor expectations.

The Millennium Sicav was implemented to replace the Management Company in Luxembourg, the partnershipLuxcellence (a subsidiary of Grupo Caceis) having performed these functions previously carried out by RBS Bank.This change provided for Millennium Sicav Investors not only a cost saving, which translates into improved levelsof profitability, but also a more robust overall solution in terms of risk control and quality management.

Following the sale process of almost all of Millennium bcp’s stake in the share capital of Millennium bank inTurkey,the distribution contract of Millennium Sicav was terminated, with the withdrawal of all Turkish Customeroperations, the impact of this operation being immaterial, given the amounts involved. Instead, we emphasize thesustained growth of transactions by Customers of Millennium bank in Greece over the year, creating positiveexpectations about the future development of the distribution of Millennium Sicav in Greek Retail.

The amount of funds under Millennium Sicav management, domiciled in Luxembourg, amounted to 273 millioneuros at the end of 2010, registering an increase of 4.5% of assets under management in comparison with theend of 2009.

The discretionary management business area, under the responsibility of the MillenniumWealth Management Unit,was marked, in 2010, by a significant increase in turnover. Assets under management at year end amounted to587 million euros, a growth of 48.6% over the balance at the end of 2009.This growth reflects, on one hand, thequality of supply and, on the other, the strong commercial momentum focused on insurance-based products.Launched in mid 2007, this product has shown an increase of approximately 136.0%.

In an integrated philosophy of optimization of synergies, the Asset Management area will, in 2011, proceed witha business strategy of growth in turnover, through the expansion of supply, focusing on competitive products andintensifying the relationship with the commercial networks, in order to ensure high levels of satisfaction.


FOREIGN BUSINESS

The Foreign Business segment, for the purpose of geographical segments, comprises the operations outside Portugal,in particular Bank Millennium in Poland, Millennium bank in Greece, Banque Privée BCP in Switzerland, BancaMillennium in Romania, Millennium bim in Mozambique, Banco Millennium Angola in Angola, Millennium bcpBank & Trust in the Cayman Islands, Millennium bank in Turkey (operation sold on 27 December 2010) andMillennium bcpbank in the United States of America (operation sold on 15 October 2010).

The Foreign Business segment, in terms of the business segments, comprises the Group operations outside ofPortugal referred to above, excluding Banque Privée BCP in Switzerland and Millennium bcp Bank &Trust in theCayman Islands, which are included in the Private Banking & Asset Management segment.

In Poland, the Group is represented by a universal bank offering a wide range of financial products and servicesto individuals and companies nationwide; in Greece by an operation based on innovative products and services;in Switzerland by Banque Privée BCP, a Private Banking platform under Swiss law; and in Romania with anoperation focused on individuals and small and medium-sized companies.Additionally, the Group is representedin Mozambique by a universal bank targeting companies and individual Customers; in Angola by a bank focusedon private Customers and companies, as well as public and private institutions; and in the Cayman Islands byMillennium bcp Bank &Trust, a bank designed for international services in the area of Private Banking to Customerswith high net worth (Affluent segment).

The net contribution of the Foreign Business segment, considering the geographical segmentation criteria, totalled96.2 million euros in 2010, compared with a net contribution of 11.8 million euros in 2009, benefiting from therise in net operating revenues and the reduction in impairment charges.

The increase in net interest income by 35.7% from 2009 was driven by the performance achieved in mostgeographies, boosted essentially by the operation developed in Poland, due to the volume and interest rate effect,and by subsidiaries in Angola, Mozambique and Romania, based on the growth in business volumes.

In other net income, highlights include the performance of commissions sustained by the contributions of thesubsidiary company in Poland (related to the increase in fees associated with the cards business, accountmaintenance and investment funds),Angola (associated with the increase in the business volumes, in both loansto customers and customer funds) and Switzerland (supported by brokerage commissions). In the activity inMozambique it is worth noting the gains associated with foreign exchange operations obtained in transactionswith Customers.

The decrease in impairment charges and provisions of 11.6% from 2009 is associated with the lower provisioninglevel posted by the operation developed in Poland and Romania, which offset the increase in impairment chargesbooked in Greece,Angola and Mozambique.

Loans to customers rose 6.7% to 16,926 million euros as at 31 December 2010, benefiting from the performancein loans to individuals, reflecting the growth evidenced in the operations developed in Angola, Mozambique,Poland and Romania.

Total customer funds increased 6.8% to 16,483 million euros as at 31 December 2010, influenced by theperformance in customer deposits, which grew 5.8%, as well as in capitalisation products.


SEGMENTAL REPORTING

137

138

EUROPEAN BUSINESSPolandBank Millennium is an universal bank of national scope that, in conjunction withits subsidiaries,offers a vast range of financial products and services to individualsand companies. Leveraged by a renewed network of 458 branches,Bank Millennium is one of the main operators in the Polish market,with a leadingposition in Retail Banking, supported by an efficient sales industrialisationplatform and by the growing reputation of the Millennium brand.Bank Millennium develops its activity through various Business Areas providingcustomised and specific products and services in Retail, Companiesand Investment Banking.Bank Millennium has the fourth largest Retail Networkin Poland, with 1.1 million active Customers, being the international operationwith the highest net contribution to the net income of the Bank (17.7% in2010, which compares favourably with the 0.1% contribution in 2009).

After 2009, focused on internal reorganisation and in which the Millennium2010 strategic programme was successfully concluded a year before itsexpected deadline, aimed at: i) strengthening the Bank’s Retail businessbased on the branch network; ii) focusing the business on the companiessegment related to SME; iii) increasing efficiency and strict cost control andiv) implementing a more conservative risk management policy.At the endof 2009, Bank Millennium approved and began the implementation of anew strategy for the period 2010-2012.

The new guidelines for this three-year period seek to return to the expansionof its business, based on an operating model which is more simplified, flexibleand efficient in terms of costs,on a realigned commercial platform,with a greaterfocus on net income, with increased recurrent income, an improved riskprofile and a comfortable capital and liquidity position. Based on a balancebetween business growth and profitability, with strong emphasis onsustainability, the main ambitions for the next few years include: i) achievinga position in the top 5 of the Polish banking system, with a position ofleadership in Retail and a relevant presence in Company Banking; ii) achieving

Million euros

31 Dec.10 31 Dec. 09 Change % ‘10/‘09

PROFIT AND LOSS ACCOUNTNet interest income 544.2 401.1 35.7%Other net income 365.7 383.2 -4.6%

910.0 784.3 16.0%

Operating costs 617.9 561.6 10.0%Impairment 171.0 193.6 -11.6%Contribution before income tax 121.0 29.1 -

Income tax 24.8 17.4 43.0%Net contribution 96.2 11.8 -

SUMMARY OF INDICATORSAllocated capital 1,241 1,321Return on allocated capital 7.8% 0.9%Risk weighted assets 14,272 14,381Cost to income ratio 67.9% 71.6%Loans to customers (1) 16,926 15,868 6.7%Total customer funds (1) 16,483 15,430 6.8%

(1) Does not include the subsidiaries Millennium bank Turkey and Millennium bcpbank USA.

201020092008

NUMBER OF BRANCHESUnits

TOTAL CUSTOMER FUNDSExcluding FX effectMillion euros

Balance SheetOff Balance Sheet

490 472 458

201020092008

8,884

10,043

8791,042

8,004 8,0059,001

8,609605


a level of sustainable profitability comparing favourably with its peer group; iii) developing a highly efficientoperation and, at the same time, establishing high standards in terms of Customer service quality; iv) maintaininga solid capital structure, with a strong risk management profile to underpin future growth and v) strengtheningthe Bank’s market position on the basis of lasting relations with all its Stakeholders. In order to bring about theseambitions, the Group also assumes, as short/medium-term financial objectives, the achievement of a minimum ROEof 15%, a cost to income ratio below 60%, a solvency ratio comfortably above the regulatory minimum and amarket share of 7% and 5% in the Retail and Companies segments, respectively.

In terms of the business development in 2010, the Bank once again focused on the funds growth in the Retailand Companies segments, highlighted by the savings accounts campaigns, during May and June, that wereparticularly successful, that included a promotional rate of 6.5% for new applications up to 200 thousand zlotys.A second campaign was launched in August and September, where the main objective was to retain the levelsof funds of previous months. During the second quarter of 2010, Bank Millennium launched a new credit cardMillennium Visa Impresja, designed for women, representing one of the greatest innovations of the Bank in thisarea up to now.The main characteristic of the card is a refund of 5% of transactions value in a group of topretailers and brands. Market reaction to this product was very positive, with more than 85 thousand cards soldin 2010.The card was distinguished as the most innovative in the “Innovative Cards” category at the Publi-NewsTrophees.

The Bank also dedicated particular attention to recovering its natural market share in mortgage loans, whichtranslated in an effective marketing campaign supported by a well-known Polish brand, the adjustment ofvarious characteristics in the offer and the participation in the programme “Family at Home” subsidised by theState. Nonetheless, market share in 2010 stood at 9.3%, which compares with 10.2% in 2009. Also worthmentioning the launch of the first current account exclusively via Internet, which was supported by a campaignbased on the Internet channel, designed specifically for Youtube. On theother hand, in line with the strategy of focusing on loans to companiesthrough collateralised products, Bank Millennium significantly expanded itsleasing and factoring activity.

In 2010, and in view of the success of the implemented campaigns,Bank Millennium maintained its position of leadership in Retail banking,mainly in deposits, mortgage loans and cards, also having strengthened itscompetitive position in other products for individuals, such as investmentfunds and consumer credit. These actions led to number of Customersconsolidation, which stood at approximately 1.1 million in 2010.

Net income increased significantly over this last year, from 0.3 million eurosto 81.3 million euros, essentially as a result of core income significantincrease (+49% versus 2009), both on net interest income (+69%) and netcommissions (+24%), and the maintenance of a cost control policy (+15%versus 2009, +6% excluding fx effect). Results improvement was boosted bya rational management of term deposits spread, by the impact of the efforts,initiated in 2009, to adjust the loans to companies spread to the currentmarket conditions and by the significant increase in cross-selling ratio.Regarding costs, the reduction of cost of risk, when compared to 2009, wasespecially noteworthy, essentially due to the maintenance of conservativeunderwriting criteria and the stabilization of the loan portfolio quality.

In this way, the combination of core income significant growth with operatingcost control and cost of risk reduction enabled Bank Millennium toconsiderably improve all of its profitability indicators. Notwithstanding thenegative impact on the loan portfolio of the zloty depreciation, the depositsgrowth has translated into the slight decrease of the transformation ratio,which remained at 99.5%, comparing to 100.4% in 2009.

The management of the capital base is an ongoing challenge in the life of theBank and 2010 was no exception.Thus, for the purpose of achieving an evenmore solid capital and liquidity structure, complying with all the solvency

Mortgage loansConsumer creditLoans to companies

201020092008

8,679

NUMBER OF CUSTOMERSThousands

8,7029,541

2,401 2,3522,389

670 804

5,607 5,546

865

6,287

201020092008

1,153 1,129 1,125

LOANSTO CUSTOMERS (GROSS)Excluding FX effect Million euros


SEGMENTAL REPORTING

139

140

ratios, a capital increase was concluded successfully in February 2010, through the issue of rights by Bank Millenniumin the amount of 1.1 billion zlotys (approximately 259 million euros).This positioned Bank Millennium as oneof the most highly capitalised banks in the Polish banking sector. Furthermore, during 2010, the Bank establishedtwo funding agreements: one with the European Bank for Reconstruction and Development (EBRD) in theamount of 35 million euros and another with the European Investment Bank (EIB) in the amount of 100 million euros.These measures, combined with the detailed analysis of the risk weighted assets, the adoption of significantrestrictions with respect to involvement in large loan transactions, the reduction of capital requirements formarket risks and the maintenance of the value of the loan portfolio, enabled Bank Millennium to increase itssolvency ratio from 11.3%, at the end of 2009, to 14.4%, by the end of 2010, and the Tier 1 ratio from 8.9%to 12.3%.

In 2011, Bank Millennium will strengthen its focus on the expansion of its activity, with a view to maintaining thegrowth of core income in the Retail and Companies segments and, at the same time, maintaining a tight controlon the cost base and a conservative risk profile, taking into account the medium-term strategic objectivesannounced for 2012.The acceleration of the process of attracting new Customers will also be a priority, basedon the Bank's vast and modern network of branches, its complete offer of products and services, the brandnotoriety, the high quality service and the effective marketing campaigns. For this purpose, the Bank will focus onthe cross-selling of products and services, so as to strengthen its relations with the present Customer base.

The rebalancing of the loan portfolio is another important goal for the Bank for the near future. Bank Millenniumintends to considerably increase its market share of loans to companies in different sectors, the SME in particular,with special emphasis on asset-backed products, such as leasing and factoring, and to decrease the weight of loansdenominated in foreign currency on actual portfolio, thus maintaining a well-diversified portfolio of moderate risk.

BANK MILLENNIUM – POLAND

‘10 ‘09 ‘08 Change% ‘10/‘09 ‘09 Change %‘10/‘09

excluding FX effect

Total assets 11,820.0 10,942.6 11,341.0 8.0% 11,299.1 4.6%

Loans to customers (gross) 9,541.1 8,427.7 8,305.6 13.2% 8,702.2 9.6%

Loans to customers (net) 9,242.4 8,158.1 8,125.2 13.3% 8,423.9 9.7%

Customer funds 10,043.0 8,603.7 8,238.6 16.7% 8,884.0 13.0%

Of which: on Balance Sheet 9,001.2 7,752.7 7,659.9 16.1% 8,005.3 12.4%

off Balance Sheet 1,041.8 850.9 578.7 22.4% 878.7 18.6%

Shareholders' equity 1,029.2 679.1 677.7 51.6% 701.2 46.8%

Net interest income 231.4 137.2 266.6 68.6% 149.3 55.0%

Other net operatingincome 196.8 197.7 260.7 -0.4% 215.2 -8.5%

Operating costs 270.3 234.5 339.9 15.3% 255.2 5.9%

Impairment and provisions 56.2 100.0 38.5 -43.8% 108.8 -48.4%

Net income 81.3 0.3 117.9 23,630.4% 0.4 21,704.7%

NumberofCustomers (thousands) 1,124.9 1,129.1 1,153.1 -0.4%

Employees (number) 6,135 6,245 7,049 -1.8%

Branches (number) 458 472 490 -3.0%

Market capitalisation 1,495 993.1 588.8 50.6% 1,025 45.8%

% of share capital held 65.5% 65.5% 65.5%

Million euros

Source: Bank MillenniumForeign exchange rates:Balance Sheet 1 euro = 3.975 4.1045 4.1535 zlotyIncome Statement 1 euro = 4.0078625 4.36182083 3.50572917 zloty


The rigorous cost control and the maintenance of a conservative approach to risk will continue to be importantaspects of the Bank’s activity. Regarding liquidity, the Bank will maintain its focus on balanced growth of depositsand loans and, at the same time, will continue its efforts directed towards the diversification of sources of funding.Bank Millennium will continue to impose strict discipline in capital management, involving the allocation of capitalto products and segments showing greatest potential profitability.

GreeceIn September 2010, Millennium bank celebrated its 10th anniversary, initiallyunder the brand Novabank and with 45 branches. Its activity over this decadehas focused on Retail under a strategy of organic growth, based on thecombination of market segmentation in four Business Areas: Retail Banking,Private Banking, Business Banking and Corporate and Investment Banking,withan offer of innovative products, high service levels and highly-skilled humanresources. By the end of 2010,Millennium bank had a network of 155 branches,serving 563 thousand Customers.

2010 was a very difficult year for the Greek banking sector, due to the seriouseconomic and financial crisis being experienced by the Hellenic Republic,whichled to the preparation of an Economic Adjustment Programme and theimplementation of comprehensive budget consolidation measures, with abroad impact on internal demand.The impact at the Greek banking sectorwas reflected, essentially, in the significant increase of banks funding costs andthe deterioration of the loan portfolio quality. In order to mitigate theseimpacts on the Bank's activity, in 2010, Millennium bank implemented variousmeasures aimed at increasing deposits and new Customers attraction togetherwith a strict control of loan defaults.

This last year was characterized by an alteration of the corporate governancemodel, with the segregation of the functions of the Chairman of the Board ofDirectors (Chairman) and Managing Director (CEO) and the establishment ofa new management structure, so as to enable the fast and successfulimplementation of the new strategic agenda.The Bank also paid particularattention to the strengthening of risk management and control, establishing newstrategic guidelines covering the areas of risk identification, acceptance,measurement, monitoring, reporting and control, in order to deal with theadverse impacts resulting from the deterioration of the economic environment.

From November 2010 onwards, the Bank entered into a new stage of its life,with the alteration of its business model, which was, as of this date, based ona single distribution channel, as a result of the unification of the Retail, Businessand Private Banking networks.This unification enabled economies of scale andthe achievement of various operating synergies,with each of the 155 branchesoffering the same service and strengthening Customer relations.

In order to achieve the defined objectives, the Bank launched variouscampaigns, in particular the new salary and pension programme (“MillenniumDimosiou”) for civil servants and pensioners, a segment of the population,which has been especially affected by the Greek sovereign debt crisis.Thisprogramme includes a deposit with an interest rate of 2% for the first 1,500euros invested, an overdraft facility up to one salary or pension with a maximumof 1,500 euros and exemption from the annual fee paid for the Millenniumbank credit card.The launch of this programme was supported by a highlyvisible campaign, including a lottery of 1,000 euros for ten Customers eachmonth, communicated as a mean for Customers to recover the amount lostas a result of salary cuts following Greek austerity measures.

Inspired by its 10th anniversary, Millennium bank also launched a newten months deposit with the monthly payment of interest and at a preferentialinterest rate which reaches 10% in the 10th month.The product was publicised

201020092008

178 177

155

201020092008

3,2463,473

3,122

3,3193,607

3,250

NUMBER OF BRANCHES Units

TOTAL CUSTOMER FUNDS (*)

Million euros


Balance SheetOff Balance Sheet

201020092008

502540 563

128135

73

(*) The values presented exclude securities’ custody.


SEGMENTAL REPORTING

141

142

emphasising and promoting its association with number 10. Since its launch, on 10th May, the Bank has attractedapproximately 480 million euros. Millennium bank continued to focus on its most successful products: the “Savingsfor all” programme, a savings plan which paid an interest rate of 2% provided that the Customers undertook to savea certain amount each month. Customers acquisition was also supported by the promotion of a new healthinsurance programme “Privileged Care”, which provides direct access to medical counselling 24 hours a day, thepossibility of emergency medical assistance at home and ambulance transport at a competitive price.

The increased Customer base was also the result of the continued partnership with the Greek subsidiary of thecompany Ikea and maintenance of focus on the “Ikea” credit card, enabling the acquisition of products throughinterest-free consumer credit. It should also be noted in particular that these two institutions promoted variousactions and campaigns aiming at Customers retention.

The Bank maintained its tradition of offering innovative products as one of its factors of differentiation on the market.In the area of bancassurance, Millennium bank promoted, in 2010, the “Privileged Care – Health Card” programme,which offers a vast range of services, from prevention, diagnosis and treatment, for only 10 euros/year, includinghome visits by doctors of all specialities at accessible prices.The Bank also promoted the “New Home Protection”insurance product, aimed at Customers who wish to protect their homes at a very attractive price.The “Protectionof Goods” insurance product which provides Customers with effective coverage for any possible loss or theft of creditand/or debit cards, as well as their personal belongings, purse, keys, documents, telephone, amongst others, is yetanother example of product innovation offered by the Bank.

For the purpose of improving its Customer service and satisfaction levels,Millennium bank implemented the first stage of the“Mille Desk”programme,which consists of a new computer application with a greater number ofcommercial and operational functionalities, aimed at improving and ease salesprocedures in the branches and reducing time spent on administrative tasks.Also regarding the improvement of products and services offered by theBank, Millennium bank started the process of renewal and upgrade of itsdebit cards, through the incorporation of chips in the cards, so as to reducerisks associated to fraud and increase security for transactions carried out.

By the end of 2010, even taking into account the initiatives implementedduring the year, the effect of the economic crisis had a negative impactreflected in decreased customer funds, which fell from 3,607.4 million euros,at the end of 2009, to 3,250.4 million euros, at the end of 2010. Even in suchunfavourable circumstances, Millennium bank maintained its support toGreek economy, as illustrated by the maintenance of customer loans(gross) levels, which stood at 5,157.5 million euros, at the end of 2009 and5,123.2 million euros, at the end of 2010. Net income, essentially as aconsequence of the adverse economic situation of the country, fell from9.0 million euros to -16.0 million euros in 2010.

LOANSTO CUSTOMERS (GROSS)Million euros

5,123

2,376

2010

5,158

2,015

2009

4,848

1,873

2008


2,4282,164

811 715 646

2,101


During 2011, Millennium bank will maintain the guidelines began in 2010, focusing on: i) the attraction and increaseof the market share of deposits, ii) the safeguarding of loan portfolio quality and iii) improved efficiency, namelythrough the continued implementation of the new model of an unified distribution channel and reduction ofoperating costs.

SwitzerlandBanque Privée BCP is a private banking platform established in Switzerland in 2003,which provides services to GroupCustomers with high net worth.

The difficult macroeconomic circumstances experienced in 2010 in the mainstrategic markets led to the reduction of assets under the management ofBanque Privée BCP, which fell from 2,550.6 million euros, at the end of 2009, to2,206.6 million euros,at the end of 2010.However, this is considered a temporaryproblem because, even in this difficult context, Banque Privée BCP pursued itsmarketing activities in the main markets and obtained growth in the Customerbase, representing markets and segments where the Bank is increasinglybetter positioned to serve its Customers over the coming years.

It is important to highlight that in these adverse economic circumstances,where there has been a decrease in the asset base of PortugueseCustomers, the adoption of a process of deleveraging by Customers andthe appreciation of the Swiss franc, Banque Privée BCP, nevertheless,recorded an increase in operating income in 2010, to 28.6 million eurosfrom 24.0 million euros in 2009, based on higher net interest income andcommissions. However, this improvement was insufficient to compensatefor the unfavourable effect arising from the increase in provisions andimpairment, leading to a decrease of net income from 7.8 million euros in2009 to 4.2 million euros in 2010.

TOTAL CUSTOMER FUNDSExcluding FX effectMillion euros

2,485

279

2010

2,894

256

2009

3,282

197

2008

Balance Sheet

Assets under Management

2,207

3,026

2,697

Following previous years practice, Millennium bank‘s focus on service quality was reflected in the high Customersatisfaction levels achieved and in the various prizes with which it was distinguished by several renowned institutions.Millennium bank was awarded the “2009 EUR Straight –Through Processing Excellence Award” for the third yearconsecutively, by Deutsche Bank, which once again recognised the exceptional service provided in the processingof euro transfers to the entire world.

MILLENNIUM BANK – GREECE

‘10 ‘09 ‘08 Change % ‘10/‘09

Total assets 6,858.3 6,669.1 6,104.0 2.8%Loans to customers (gross) 5,123.2 5,157.5 4,848.0 -0.7%Loans to customers (net) 4,996.8 5,083.2 4,793.7 -1.7%Customer funds 3,250.4 3,607.4 3,318.8 -9.9%

Of which: on Balance Sheet 3,122.4 3,472.6 3,246.4 -10.1%off Balance Sheet (*) 128.0 134.8 72.5 -5.0%

Shareholders’ equity 372.3 388.5 314.1 -4.2%Net interest income 127.5 124.7 126.0 2.2%Other net operating income 32.5 45.1 41.8 -27.9%Operating costs 124.1 125.8 126.3 -1.3%Impairment and provisions 57.3 24.7 16.7 131.9%Net income -16.0 9.0 15.1 -277.2%Number of Customers (thousands) 563.2 540.4 502.1 4.2%Employees (number) 1,470 1,527 1,554 -3.7%Branches (number) 155 177 178 -12.4%% of share capital held 100.0% 100.0% 100.0%

Million euros

(*) The values presented exclude securities’ custody.


SEGMENTAL REPORTING

143

144

For 2011, the strategy involves the maintenance of strict rules on compliance, cost control, increase of organisationalefficiency and focus on the constant improvement of investment management solutions, so as to increase proximity toCustomers and the presence of Banque Privée BCP in the markets where it operates,while remaining attentive to theportfolio of Portuguese Customers.

RomaniaMillennium bank, a greenfield operation launched in Romania in October2007, is a nation-wide bank offering a vast range of innovative financialproducts and services to individuals and companies, leveraged by a networkof 74 retail branches, covering the main Romanian cities.The Bank expectsto achieve the breakeven point in 2013. In a rather fragmented market, withover 40 institutions, Millennium bank is already, after only three years ofactivity, the 23rd bank in the ranking in terms of total assets, according to thedata published in September by the National Bank of Romania.

The adverse macroeconomic circumstances have continued to constrainRomanian banking activity, with an impact in terms of the deceleration ofcustomer loans, a significant increase in loan defaults and liquidity shortage,leading to more conservative and rigorous management policies.

In this scenario, Millennium bank has pursued its strategy, implemented in2009, with the objective of improving net income, based on higher efficiencylevels in terms of costs, the improved quality of the loan portfolio, betterallocation of funds and stricter risk and capital management. Millennium bankthus remained focused on its core income, which has already shown animprovement relative to the same period of the previous year, as a result ofa selective policy in terms of loan concession, and on the adoption of a costcontrol policy, aimed at the improved efficiency of the Bank. Millennium bankis confident it will strengthen its position on the market, which, according tothe trends of other European markets, will be subject to greater regulationand control.


2008

23

2009

27

2010

29


Excluding FX effectMillion euros

2008

100

2009

253

2010

283

(*) Includes only On-Balance sheet Funds

MILLENNIUM BANQUE PRIVÉE – SWITZERLAND

‘10 ‘09 ‘08 Change %‘10/‘09 ‘09 Change %‘10/‘09excluding FX effect

Total assets 744.7 880.1 872.1 -15.4% 1,044.3 -28.7%Loans to customers (gross) 602.3 752.4 753.8 -19.9% 892.7 -32.5%Loans to customers (net) 568.4 723.7 723.0 -21.5% 858.7 -33.8%Customer funds 2,485.4 2,766.0 2,436.7 -10.1% 3,281.8 -24.3%

Of which: on Balance Sheet 278.7 215.4 165.9 29.4% 255.6 9.1%Assets under management 2,206.6 2,550.6 2,270.9 -13.5% 3,026.3 -27.1%

Shareholders' equity 103.4 83.2 42.3 24.2% 98.8 4.7%Net interest income 8.5 7.0 7.6 21.8% 7.6 11.4%Other net operating income 20.1 17.0 12.0 18.1% 18.6 8.0%Operating costs 18.1 15.1 14.5 19.9% 16.5 9.7%Impairment and provisions 4.9 -1.4 45.2 445.0% -1.6 415.6%Net income 4.2 7.8 -30.4 -46.1% 8.6 -50.7%Number of Customers (thousands) 1.9 2.1 1.8 -9.8%Employees (number) 71 65 66 9.2%Branches (number) 1 1 1 0.0%% of share capital held 100.0% 100.0% 100.0%

Million euros

Foreign exchange rates:Balance Sheet 1 euro = 1,2504 1,4836 1,485 Swiss francIncome Statement 1 euro = 1,37895 1,50777917 1,5836375 Swiss franc


With the objective of implementing its strategy, Millennium bank has alsofocused on the development of new approaches to its Customer relations,by expanding the offer with products such as salary accounts, deposits withconstant and growing interest rates and accounts for entrepreneurs, so asto increase its position in terms of funds. According to the most recentinformation available (October 2010), the market share of deposits ofindividuals reached approximately 1.0% and company deposits were at 0.5%.Note should also be made of the launch of wealth management productsand services at the end of 2010, which are expected to have an importantimpact on the Bank’s income in the short-term.

In view of the current economic climate, the Bank has adopted a very strictand rigorous policy on loan concession, in order to improve the portfolioquality, focusing on mortgage loans, where the market share, for the periodreferred to above, stood at over 1% in a very competitive market.

Millennium bank recorded a negative net income of 23.6 million in 2010,which compares favourably with the 38.0 million euros recorded in 2009,mainly due to the good performance of net interest income and commissions,as well as to the reduction of cost of risk.

Millennium bank’s prospects for 2011 consist of the consolidation of its position in a very fragmented andcompetitive market, the seizing of opportunities during the expected improvement of the country’s economicconditions, the expansion of the market share of the Bank through the attraction of new Customers andincreased cross-selling of value added products.The guidelines for 2011 are based on the continuation of thestrategic plan started in 2009, concentrating on: i) the improved profitability of its distribution network, throughthe increased Customer base, supported by innovative and differentiating service, with mortgage loans beingthe anchor to retain Customers; ii) focus on the SME segment; iii) increased efficiency in the implementation ofspecific cost cutting and control policies and iv) more conservative risk and capital management, namely interms of procedures for loan approval and recovery.

LOANSTO CUSTOMERS (GROSS)Excluding FX effectMillion euros

344

138

2010

267

35

2009

223

16

2008

114

115

92

118

126

81


MILLENNIUM BANK – ROMANIA (*)

‘10 ‘09 ‘08 Change %‘10/’09 ‘09 Change %‘10/‘09

excluding FX effect

Total assets 521.1 472.0 310.4 10.4% 469.2 11.1%Loans to customers (gross) 344.1 268.2 236.2 28.3% 266.5 29.1%Loans to customers (net) 304.4 242.9 225.3 25.3% 241.5 26.1%Customer funds 282.5 254.5 105.4 11.0% 252.9 11.7%

Of which: on Balance Sheet 282.5 254.5 105.4 11.0% 252.9 11.7%Shareholders' equity 80.8 58.9 32.5 37.3% 58.5 38.1%Net interest income 16.8 5.9 3.4 185.0% 5.9 182.7%Other net operating income 9.9 16.9 10.0 -41.7% 17.1 -42.2%Operating costs 40.7 41.4 41.7 -1.6% 41.7 -2.4%Impairment and provisions 13.7 16.6 10.7 -17.5% 16.7 -18.2%Net income -23.6 -38.0 -32.9 37.9% -38.3 38.4%Number of Customers (thousands) 29.3 27.1 22.7 8.1%Employees (number) 731 700 691 4.4%Branches (number) 74 74 65 0.0%% of share capital held 100.0% 100.0% 100.0%

Million euros

* Bank started its operations in October 11, 2007.Values include Banca Millennium (Romania) and Banpor Consulting (Romania).Foreign exchange rates:Balance Sheet 1 euro = 4.262 4.2363 4.0225 new Romanian leuIncome Statement 1 euro = 4.21037083 4.24474583 3.68775417 new Romanian leu


SEGMENTAL REPORTING

145

146

TurkeyUnder the analysis carried out on the portfolio of international operations, and in view of the Bank’s strategyof focus on priority markets, BCP proceeded with the sale of 95% of the share capital of Millennium Bank A.S.in Turkey to the financial institution Credit Europe Bank, N.V., an entity owned by the financial group FIBAHolding, A.S., for the adjusted total price of 58.9 million euros.

As a result of this transaction, BCP maintained a 5% stake in the company, having agreed with the buyer a putand call mechanism for the possible sale of its remaining stake for a price per share not lower than that receivedat this point.This transaction generated pre-tax capital gains of 1.2 million euros and had a positive impact of5 basis points on BCP’s Tier I capital ratio.

OTHER INTERNATIONAL BUSINESSMozambiqueMillennium bim,which celebrated its 15th anniversary in 2010, is Mozambique’sbiggest bank, with 125 branches, offering a full range of financial productsand services, including insurance. Millennium bim is strongly committed tocontributing to the development of Mozambique’s economy and financialsystem, to strengthening and developing its business structure and to helpingto improve the living standards of its people, not only through involvementin social responsibility measures, but also through the offer of innovativebanking products and services that contribute to meeting the financial needsof the Mozambican people.

The strategic guidelines defined for 2010 involved the maintenance of aculture of service quality and continued commitment to innovation, at thesame time seeking to promote the expansion of the Customer base,maximising profitability and intensifying cross-selling. Special attentioncontinued to be paid to the strengthening of the commercial capacity,business segmentation, broader electronic banking use and to theprogramme of branch network expansion. At the same time, disciplinehas been maintained in addressing compliance and risk managementrelated matters.

In 2010, and particularly in the second half of the year, the Mozambicanfinancial sector experienced liquidity difficulties, with a negative impact onfinancial costs. Millennium bim took various measures in order to deal withthese constraints, in particular an issue of 5-year bonds for the total value of20 million euros and the adoption of a policy of protection of net interestincome through the repricing of the loan portfolio, favouring, in new loans,loan operations with a short-term profile and good risk level.

The leadership position maintained by Millennium bim, with a marketshare between 34% and 39%, relative to funds and loans, is the result ofits capacity for innovation and the diversification of its offer of productsand services aimed at the Corporate and Retail segments.

2010 was strongly orientated towards acquisition of customer funds, withvarious campaigns having been launched, in par ticular the “Save MoreDeposit”, which consists of a financial application at 365 days, with anaccessible minimum amount; for its constitution and attractive interestrates by bracket of amount, the “DP 15 years”, a product commemoratingthe 15 years of Millennium bim, which consisted of a financial applicationat 365 days, with pre-defined and constant monthly interest rates and15% interest rate during the month of November, and “DP Special”, whichconsisted of a financial application with attractive interest rates by bracketof amount and various options regarding amount and maturity.


2008

100

2009

116

2010

125



2008

653

2009

866

2010

991



Millennium bim continued to focus on innovation in order to meeting the financial needs of its Customers,whom it serves on a segmented basis, seeking to meet their expectations and requirements. Regardingcredit cards, the “Come with me to Rock in Rio and World Cup” campaigns were launched.The institutionalcampaign “We are born for all” was also launched, aiming to strength the positioning of Millennium bim asthe “Bank of all and for all”. These campaigns are in line with the strategic objectives defined for 2010, offocusing on attracting and retaining funds and increasing transactions with credit cards and at POS. Theinitiatives seek to increase and improve the offer of products and services, in order to meet the growingand increasingly more demanding needs of the Customers, while at the same time strengthening theprofitability of the Bank.

In terms of loans, particular note should be made of the marketing of thefollowing products: “University Loans”, aimed at university studentsintending to carry out university degrees or post-graduate studies, withattractive/subsidised interest rates, an exemption period for the paymentof principal and extended repayment terms, the “New Agricultural CreditLine” which consists of a credit line to finance individuals, companies andsmall businessmen linked to the agricultural sector in the provinces ofMaputo and Gaza; and the “Documentary Credit for Imports Campaign”(DCI), with a lower price list for operations contracted until the end ofDecember.

The actions initiated in 2009 in terms of training were maintained during2010, with strategic focus on the improvement of Employees skills and onBank’s service quality, in order to best serve the Customers. Note shouldalso be made of the fact that the market once again recognised andawarded the value proposition presented by Millennium bim, throughthe adherence and confidence in its products and services, confirmed bythe increased Customer base, which exceeded 860 thousand Customers,an increase of 22% relative to 2009.

Particular note should also be made of the national and internationalrecognition received by Millennium bim, which obtained the largest numberof distinctions and awards received in 2010 in the financial sector, namelythe “Corporate Social Responsibility” award attributed by the publicationEmeafinance in the context of the “African Banking Achievement Awards”;the “Best Banking Brand” award, a study promoted by the multinational GFK;the“Best Bank of Mozambique”award attributed by two renowned institutions– Global Finance and Emeafinance – and the recognition of being “One ofthe 5 Best National Banks of Africa” by IC Publications.

At the end of 2010, consolidated net income reached 52.8 million euros,representing a growth of 1.4% comparing to 2009, even taking into accountthe devaluation of the metical in relation to the euro. The core incomecontinued on the trend of growth shown over the past few years, with netinterest income increasing by 13.8% and banking income by 11.9% in 2010.Return on equity stood at 32.3%, compared with 35.6% in 2009, with thisfinancial institution being the most solid one of the market with a robustown funds structure and a comfortable solvency ratio, standing at 15.5%.Notwithstanding the impact of the branch network expansion programmeand the adverse macroeconomic situation, which have exerted pressure oncosts and net interest income, the cost to income ratio was slightly lowerthan in 2009, standing at 43% by the end of 2010 (44% in 2009).

These indicators show the success of the strategy of Millennium bim, directed towards the customer fundsacquisition, as well as the rigorous management, with par ticular focus on good practices of corporategovernance and adherence to the International Financial Reporting Standards, which were part of the factors


2008

411

291

10020

484

157

23

612

216

26

2009

664

2010

854


2008

555

2009

706

2010

864



SEGMENTAL REPORTING

147

148

leading to the financial stability achieved by the Bank, in spite of the international crisis currently beingexperienced.The value proposition of Millennium bim, based on high quality and innovative products andservices, is clearly one of the main factors of its differentiation from its market peers.

The subsidiary of Millennium bim, Millennium seguros, maintained its position of leadership in the insurancemarket, recording a revenue growth of 4.3%. Net income stood at 5.5 million euros, an increase of 1.2%.

Since its foundation, Millennium bim has assumed the social function as a fundamental part of its mission, reflectedin the valorisation of its Employees and through the exercise of its social responsibility in the surroundingcommunities of which it is a part. For this reason, in addition to compliance with the internal codes of conduct,Millennium bim has been committed to following and disseminating the United Nations Global Pact principlessince 2003, as well as FEMA (Corporate Forum for the Environment), adopting, as such, the best internationalpractices and guidelines on good governance and on corporate social and environmental responsibility.

Millennium bim’s decision making always incorporates the principle of respect for human rights, investmentin personal valorisation, protection of the environment, the fight against corruption, compliance with socialstandards and respect for the values and ethical principles of the society of which it is a part. The Bank’sobjective is to foster the role of Millennium bim in the area of social action through its Social Responsibilityprogramme “More Mozambique for Me”, focusing on what is really important and what can make adifference, having carried out various actions under the programme with a view to reducing the socialinequalities of the country.

For 2011, Millennium bim will pursue the main strategic guidelines described above, with greater focus onthe defence of its market share, based on continuous search for improved service quality and profitability,through prudent risk management and the optimisation of operating performance.

MILLENNIUM BIM – MOZAMBIQUE

‘10 ‘09 ‘08 Change %‘10/’09 ‘09 Change %‘10/‘09excluding FX effect

Total assets 1,292.6 1,205.2 1,042.4 7.3% 1,138.5 13.5%Loans to customers (gross) 853.6 703.1 506.3 21.4% 664.2 28.5%Loans to customers (net) 807.8 673.2 484.1 20.0% 636.0 27.0%Customer funds 990.8 916.1 804.2 8.2% 865.5 14.5%

Of which: on Balance Sheet 990.8 916.1 804.2 8.2% 865.5 14.5%Shareholders' equity 194.8 159.1 143.5 22.5% 150.3 29.6%Net interest income 95.6 84.1 78.1 13.8% 71.0 34.7%Other net operating income 55.8 51.3 41.8 8.8% 43.4 28.8%Operating costs 65.1 59.6 54.3 9.3% 50.3 29.4%Impairment and provisions 21.2 11.6 2.5 82.1% 9.8 115.6%Net income 52.8 52.0 51.5 1.4% 43.9 20.1%Number of Customers (thousands) 863.6 706.4 554.9 22.2%Employees (number) 2,088 1,936 1,762 7.9%Branches (number) 125 116 100 7.8%% of share capital held 66.7% 66.7% 66.7%

Million euros

Foreign exchange rates:Balance Sheet 1 euro = 43.305 40.91 35.155 meticalIncome Statement 1 euro = 45.63333333 38.545 35.77020833 metical


AngolaThe mission of Banco Millennium Angola, S.A. (BMA), incorporated on April3, 2006, as a result of the transformation of the local branch into a bankunder Angolan law, is to contribute to the modernisation and developmentof the financial system in Angola. BMA thus intends to assume a key role inincreasing the level of participation of the Angolan people in the bankingsector, through the marketing of innovative and personalised financialproducts and services, designed to ensure high levels of satisfaction, Customerloyalty and the involvement of the Customer base, offering the market higherstandards of quality and specialisation.The strategic focus on the developmentof Angola’s financial system also involves investment, job creation, focus on thequalification of people and the transfer of know-how.

BMA aspires to become one of the reference banks on the Angolan market,and to this end, in 2010, assumed a strategic agenda based on five pillars:i) Business Development, ii) Retail Network Expansion, iii) Recruitment andTraining, iv) Risk Management and v) Performance.

The commercial network expansion plan was carried out through the openingof 16 new branches, with the year closing with a total of 39 branches in 12 ofthe 18 provinces ofAngola, and 714 Employees (+43% compared to 2009).Thestrengthening of the recruitment and training programmes (initial and continued)of Angolan staff continues to be a critical factor for the sustainable and efficientdevelopment of the Bank. It should be noted that, in 2010, over 100 trainingactions were promoted, corresponding to a total of 2,165 hours.

In 2010, the Bank had a total of 80.6 thousand active Customers, representingan increase of 142% in relation to the same period of the previous year,having attracted approximately 47.4 thousand new Customers comparedto the 16.7 thousand new Customers attracted in 2009.

Various innovative initiatives were launched and implemented during 2010for the purpose of complying with its strategic agenda. Particular note shouldbe made to the fact that the Bank showed a pioneering attitude with theopening of 21 of its branches on Saturdays, thus adding a further business dayto the week for the provision of banking service.Also noteworthy is the factthat the Western Union fast transfer service is now available at all branchesfor Bank’s Customers and non-customers.

Regarding marketing and products, the Bank has added the “Cacau Card”to its offer, an innovative service which enables companies to assign a pre-paidcard to their Employees, not necessarily Millennium Customers; the “VisaAdvantage Programme” the only Angolan credit card which allows itsholders to benefit from discounts at certain commercial establishmentsselected for the effect; and the “Family Savings Plan”, a product encouragingAngolan families to maintain savings. Regarding loans, the “Salary Advantage”and “SME Advantage” products were launched, respectively for individualsand companies, comprising an innovative service, which allows for theadvance of monthly revenue. With respect to means of payment, the“Non-Personalised Debit Card” was introduced, with immediate delivery tothe Customer upon opening of an account.

It should be noted that, at the end of the year’s third quarter, a new DataProcessing Centre was inaugurated, which now supports all the Bank's operations.This new IT infrastructureenables greater effectiveness meeting BMA’s needs, with positive impact on internal procedures and on the offerof products and services, thus constituting a decisive step in the consolidation of the quality service provided tothe Customer.


2008

16

2009

23

2010

39


2008

17

2009

33

2010

81



2008

241

2009

453

2010

593



SEGMENTAL REPORTING

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150

2010 was also a particularly positive year for BMA due to the three awards received in recognition of the effort anddedication shown in its process of establishment in Angola. It was considered “Brand of Excellence 2009/10” by theinternational organisation Superbrands, the “Best Foreign Bank in Angola 2010” by the magazine Emeafinance and“Bank of theYear – Angola 2010” by the magazineThe Banker.

In the communication area, note should be made of the beginning of the association of the brand“Millennium Angola”with the renowned singerYola Semedo, which has enhanced the visibility of the brand among the Angolan populationand contributed to the increase in new Customers.The “Millennium Lunches”, regular initiatives of the Bank for thepurpose of getting together personalities of the national economy and discussing subjects of interest for the country,have strengthened the proximity of the Bank to the Angolan business community.

The Millennium Atlântico Academy, a pioneering project in Angola in partnership with Sonangol and Banco PrivadoAtlântico,was presented to the public in July and seeks to provide high quality training to meet the needs of theAngolanbusiness market, namely in the areas of finance, banking and insurance.The project aims to train approximately10 thousand Angolans by 2015.

Regarding management information and control, note should be made of theprofitability analysis system’s implementation and its operationalisation in January2011.

2010 was a positive year at all levels.The activity grew in a profitable manner,withgreat dedication being channelled towards ensuring a culture of discipline andpermanent focus on results, based on sustained action plans, suitable risk, costsand investment management and improved operating efficiency.

BMA achieved a net income of 23.6 million euros, having grown by 61.4%year-on-year, with a strong improvement in the return on equity, which stoodat 18.6% (13.2% in 2009). Despite the Bank’s current engagement in theexpansion of its commercial network, there was an improvement of its cost toincome ratio, which stood at 55% in 2010 (68% in 2009). This growthresulted from a positive evolution in operating income,which increased by 58%to 94 million euros, exceeding the 26% growth in operating costs. Particularnote should be made to the strong contribution of net interest income andnet income from foreign exchange operations to the growth of operatingincome,which increased, respectively, by 91% and 28%. It should also be notedthat, in 2010, the Bank was placed in the third place in terms of ranking ofU.S. dollar purchases from the National Bank of Angola, with a share of 10%.


2008

188

188

335

385

729

2009

335

2010

465


MILLENNIUMANGOLA (*)

‘10 ‘09 ‘08 Change %‘10/‘09 ‘09 Change %‘10/‘09excluding FX effect

Total assets 1,012.0 746.2 459.3 35.6% 787.8 28.5%Loans to customers (gross) 465.2 317.3 218.7 46.6% 335.0 38.9%Loans to customers (net) 447.3 310.0 212.6 44.3% 327.2 36.7%Customer funds 593.3 428.9 279.4 38.3% 452.8 31.0%

Of which: on Balance Sheet 593.3 428.9 279.4 38.3% 452.8 31.0%Shareholders' equity 140.1 110.2 43.3 27.1% 116.4 20.4%Net interest income 51.0 26.7 12.6 90.7% 24.1 111.9%Other net operating income 42.8 32.5 11.4 31.6% 29.3 46.2%Operating costs 51.3 40.6 17.2 26.4% 36.5 40.5%Impairment and provisions 14.1 5.0 2.9 180.6% 4.5 211.8%Net income 23.6 14.6 4.4 61.4% 13.1 79.4%Number of Customers (thousands) 80.6 33.3 16.6 142.3%Employees (number) 714 499 311 43.1%Branches (number) 39 23 16 69.6%% of share capital held 52.7% 52.7% 100.0%

Million euros

(*) On February 2009, new Shareholders (Sonangol, E.P. and Banco Privado Atlântico, S.A.) have entered in Banco Millennium Angola's share capital, with a 47.3% stake.Foreign exchange rates:Balance Sheet 1 euro = 121.6 128.38 104.69 kwanzasIncome Statement 1 euro = 122.23 109.98629167 110.64008333 kwanzas


The year 2010 was also marked by the positive evolution of the volumes of loans to customers and customer funds,which grew by 46.6% and 38.3%, respectively.The total assets of the Bank reached 1,012 million euros, representing anincrease of 35.6% relative to 2009. It should also be noted that the securities portfolio reached 257 million euros,corresponding to approximately 25% of total assets.

The strategic initiatives for the coming years continue to involve business growth based on the implementation of theexpansion plan with the opening of new branches, increased Customer base and attraction of balance sheet funds inevery business segment, the strengthening of the Angolan staff recruitment and training programmes, continued focuson the implementation of risk management and monitoring processes, in addition to continued investment ininformation technologies and systems.

MacaoIn 2010, Millennium bcp inaugurated its first branch in Macao with a full license (on-shore), aimed at theestablishment of an international platform for business between China, Europe and Portuguese speaking Africa.This alteration, from an off-shore branch to an on-shore branch has also enabled the Bank to work with theresident population. It should be mentioned that the Bank has been present in Macao since 1993.

With this decision, combined with the signing of cooperation agreements with the Canton Business Associationand Canton Municipal Finance Bureau, Millennium bcp has taken yet another step in its support to the economyof Macao and to the businesspeople of this region.The activity of Millennium bcp in the region is also ensuredby its representation office in Canton (capital of the province of Guangdong, Southern China), which, togetherwith the Macao branch, has become an essential platform for the exploration of potential business opportunitiesin the China/Macao, Portuguese speaking Africa and Europe.

In view of the Bank’s expansion strategy, it is also important to highlight the signing of a memorandum ofunderstanding with the Industrial and Commercial Bank of China (ICBC), which seeks to strengthen cooperationbetween the largest Chinese bank and the largest Portuguese private bank.This agreement extends to othercountries and regions, beyond Portugal and China, aimed at covering the aforementioned strategic triangle.

Both Banks show preference in the use of reciprocal global networks in the pursuit of their respective activity inBusiness Areas such as trade finance, treasury, covering the money market, foreign exchange and swaps, cashmanagement and international payments in euros and renminbi, corporate lending and investment banking, namelyproject finance, syndicated loans and advisory services in related businesses with potential crossborder mergersand acquisitions.

Cayman IslandsMillennium bcp Bank &Trust has its head office in the Cayman Islands, with a “B” category banking license, directedtowards the provision of banking services to high net worth individuals and corporate Customers.

The Cayman Islands were considered as a cooperative jurisdiction, in light with the regulations published recentlyby the Bank of Portugal. As with other jurisdictions, the Cayman Islands also signed an information exchangeagreement with Portugal.

The Bank follows its Customer portfolio focused on the lusophone communities resident outside Portugal andin the Portuguese speaking countries of Africa.

The Millennium bcp Bank &Trust net income stood at 6.0 million euros in 2010, compared with 9.6 million eurosin 2009.This reduction resulted from net operating income decrease, namely on net interest income due toactivity contraction.


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152

United States ofAmericaIn the context of the analysis of the international operations portfolio, BCP decided, in 2010, to leave the UnitedStates of America market, and, on 15th October, concluded the transaction with Investors Savings Bank to sellthe entire branch network of Millennium bcpbank, the respective deposit base, for approximately 627 millionUS dollars (circa 445 million euros, based on a EUR/USD exchange rate of 1.4089) and part of the loan portfolio,for approximately 208 million US dollars (circa 148 million euros).

As a result of this transaction, BCP no longer has a banking operation in the United States of America. However,BCP also established a cooperation agreement with Investors Savings Bank with respect to financial remittancesderived from this country, which will enable the maintenance of a service of excellence for the former Customersof the Bank.This transaction had no significant impact on BCP’s capital ratios.

‘10 ‘09 ‘08 Change %‘10/‘09

Total assets 4,117.7 4,312.6 4,365.7 -4.5%

Loans to customers (gross) 565.3 684.2 734.9 -17.4%

Loans to customers (net) 559.1 676.9 732.4 -17.4%

Customer funds 1,070.4 1,346.1 1,683.7 -20.5%

Of which: on Balance Sheet 1,040.1 1,312.0 1,651.1 -20.7%

off Balance Sheet 30.3 34.1 32.6 -11.1%

Shareholders' equity 269.5 245.7 266.2 9.7%

Net interest income 6.8 12.7 17.5 -46.3%

Other net operating income 1.8 6.0 6.2 -70.5%

Operating costs 2.5 2.5 2.6 2.2%

Impairment and provisions 0.1 6.7 0.1 -99.2%

Net income 6.0 9.6 20.9 -37.3%

Number of Customers (thousands) 1.0 1.3 1.5 -26.8%

Employees (number) 15 15 18 0.0%

Branches (number) 0 0 0

% of share capital held 100.0% 100.0% 100.0%

MILLENNIUM BCP BANK &TRUST – CAYMAN ISLANDS

Million euros


BANKING SERVICES

The Departments comprising the Banking Services area – Information andTechnology Department, OperationsDepartment, Credit Department, Standardised Recovery Department, Specialised Recovery Department,Litigation Department, Administrative and Logistics Department and Prevention and Safety Office – provide anumber of specialised services supporting the different business units in Portugal and abroad, contributing tolower operating costs, better quality service, the maintenance of a differentiating level of technological innovationand to the minimisation of the credit and operational risks incurred. These goals form part of the strategicguidelines established for the Group and contribute to meeting the Group’s profitability and growth targets.Themain areas of action in the Banking Services areas involved organisational restructuring, strict management of newinvestments and operating costs, and implementation of measures designed to improve service levels of themajor processes relevant to commercial activity.

In 2010, the main alteration to the structure of the Banking Services was the result of the need to focus the Bank's efforton credit recovery, as a consequence of the significant increase in overdue loans, reflecting the deterioration of theeconomic environment.The Credit Recovery Department was thus transformed into the Standardised RecoveryDepartment, focused on the Retail segment and on loans of smaller value, and the Specialised Recovery Department,directed towards the Companies and Corporate segment, in the follow-up of major risks.At the end of the year, theperimeter of the Banking Services expanded with the recently created Cards Department, so as to provide greaterand more dedicated attention to a business of growing complexity, aimed at attracting Customers and retainingCustomer loyalty through more highly valued services.The Real Estate Business Department was also created in 2010and allocated to the Companies and Specialised Credit Committee, thus removing from the Banking Services all thefunctions which had been related to management, legalisation and divestment in real estate property not allocated tothe operation.

Careful cost management enabled concluding 2010 with positive budget deviations.The total operating costs of allthe Departments of the Banking Services fell in nominal terms by 7.0% relative to the budget. The volume ofinvestments increased by 7% relative to 2009 and by 31% in relation to the budget.

The number of Employees of the Banking Services areas decreased by 2.5%, to stand at 1,842 Employees, due to thereductions which took place in the Operations Department and the transfer of the Real Estate Business Department,created in 2010, to the Companies and Specialised Credit Committee.

Measurement and active management of the service levels of the various processes supporting commercial activitycontinued to mark the definition of the main performance indicators in the operational areas.There was ongoingimprovement of the thresholds achieved, reflected in an increase of the degree of internal Customer satisfaction,impacting very positively on the quality of the services provided to the Group’s Customers.

The main initiatives of a strategic nature included the special focus on cost reduction and process rationalisation andreengineering, the technological support provided to innovative value proposals, with the development of new ITapplications for different platforms of smartphones, enabling the creation of an offer of reference on the market, aswell as the renewal of the ATM and CAT network, optimisation of the management of operational risk, consolidationof the organisational model of credit risk management, so as to best meet the requirements of the IRB application,and the specialisation of the credit recovery function in the Retail, Companies and Corporate segments.

INFORMATIONANDTECHNOLOGY DEPARTMENTIn 2010, the Information and Technology Department has focused its activity and resources so as to ensure theachievement of the Bank's business objectives in Portugal and in the other countries in which it operates.

The Information and Technology Department supported the process of the relaunch of ActivoBank, havingdeveloped specific solutions to support new products, improve the efficiency of processes for account openingand credit decision making, as well as processes relative to coordination with the commercial network andoperating areas.This project involved the implementation of innovative solutions for production and distributionof informative contents by the commercial network and the development of an innovative new site on theInternet, which is simple and easy to use.

Accompanying the technological developments in the areas of mobile devices, the Customers of ActivoBank andMillennium bcp were provided with applications for the different smartphone platforms, thus enabling access tothe main bank transactions and which, as a whole, constitute the reference offer in the national market. The


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process of renewal of the ATM and CAT network was also continued and a project to replace the Call Centresolution was started.This group of developments comes under a vision of integrated architecture for the managementof the direct access channels to the Bank for the purpose of ensuring the Customers of Millennium bcp a total offerof transaction platforms, improving the effectiveness and consistency of the commercial action.

At an internal level, note should be made of the series of initiatives for the purpose of providing the Employees withbetter technical resources and application support for the implementation of their commercial action. In this contextand as result from joint work with the commercial areas, the Retail network was provided with a new version of theCommercial Action Platform (iPAC), including an overall vision of the Customer, commercial action plans,managementinformation and enabling greater integration of the sales actions with the associated back-office processes.

A new version of the cashier application (PAB) has been developed, with a series of new financial managementfunctionalities of the branches, also including support for legal requirements, namely relative to the recirculationof notes and more effective control over the operations carried out.

In the central services and branches, the “Milloffice” project has started the upgrading of the base software(Windows 7) and productivity software (Office 2007/10) at the workplaces of most of the Employees.

Sixteen initiatives have been developed for the purpose of improving the credit concession decision makingprocesses, incident particularly on theWorkflow System of the Credit Operations (SWOC), aimed at supportingthe rating of Customers, implementation of the new credit regulations, development of scoring and pricing modelsand adaptation to the legal and regulatory requirements.

Important improvements were also made to the applications used in the credit recovery process, in particular inthe collection areas.

The high levels of application availability reached in 2009 were surpassed in 2010, as well as the service levelsassociated to the Helpdesk.Among the factors which most contributed to this performance are the technologicalrenewal project on the central infrastructure supporting the distributed applications, the improvement of the internalmanagement and control processes and the continuous improvement of the incident management processes.

Culminating work carried out over three years, 2010 was the year when the testing of the technological recoveryprocesses (DRP) reached their highest levels, ever both in terms of scope and performance.The simultaneousrecovery was made of 20 critical business processes and approximately 150 applications were used in six differentcountries in an activity that mobilised over 100 Employees of the Information and Technology Department andusers of various units of the Bank.

In the context of the “IT Academy”, a significant investment was made in technical, behavioural and leadershiptraining, promoting the professional development of the Employees, the implementation of good work andmanagement practices, communication between areas and relations with the business and external supplier areas.

OPERATIONS DEPARTMENTThe main objectives of the Operations Department in 2010 consist of increased efficiency, the development of theskills of the Bank's Employees and improved service quality provided to the Customers of the Bank.

In order to achieve the above mentioned objectives, the Operations Department has sought to dedicate continuouseffort towards streamlining, seeking to optimise the Bank's operatives, in a perspective of reducing overall costs,withinsuitable quality standards.This effort has involved not only the reformulation of processes, but also its incorporationin the Operations Department, with efficiency gains, similar to the integration carried out in 2010 of the Credit forReal Estate Promotion and of the management of the special Price Lists for the Retail segment operatives.At the sametime, the development of the“Distinctive Service Levels” Project, in partnership with the Retail network, enabled thediagnosis and implementation of a series of actions of impact on the improvement of the quality of the serviceprovided to the Customers of the Bank and on increased operative efficiency.

The continued development of the “SER.DO” Programme, namely through the training and entertainment actionscarried out and the associated communication methods, contributed to Employee development and motivation,expressed in the positive evolution obtained in the satisfaction indicators.Note should also be made of the partnershipdeveloped, in 2010, with the Risk Office, with special focus on the Bank's level of the risk weighted assets (RWA).


For 2011, it will be maintained the focus on improved operative efficiency, on the valorisation of the Employees andon the improved quality of the service. In addition to the continuation of the “SER.DO” Programme, note should bemade of the consolidation and implementation in the entire Operations Department of the “SER Lean DO”Programme, as a common methodology and motto for the effort towards continuous improvement, developed andparticipated in actively by all Employees.

CREDIT DEPARTMENTIn this very unfavourable economic environment, there was an increase in the complexity of the proposals analysedand the need to strengthen the mechanisms and resources allocated to monitoring the loan portfolio, with a viewto the early identification of situations of potential default.

As expected, in 2010, there was a significant reduction in the demand for new loans, in all business segments andin product classes.

In view of the fundamental concern to ensure and maintain the solidity and quality of the decision making process,efforts were made to ensure the adequacy of the resources of the Analysis Units to the efficiency objectives ofthe Credit Department. The credit policies were adjusted with enhanced measures of rigor regarding theidentification of the most suitable levels of exposure, the selection of the most convenient purposes, modalitiesand products, with prudence adopted relative to configurations, maturities, collateral and other risk factors.

The resources available in the automatic decision making models were strengthened, with very intense activityhaving taken place and with excellent results. Of the group of projects which were implemented, note should bemade of the development of new credit decision making models and processes for the Group's domestic andinternational operations, the expansion of the application of the tools and methodologies of this area to otherspheres of action of the Bank, namely credit recovery and the contribution to the fast and efficient application ofnew decision making policies which were enforced over the year.

Particular note should also be made of the progress obtained in the harmonisation of the decision making criteriaof the automated models and credit analysis teams, with a view to strengthening the quality and robustness ofthe underlying credit processes and increasing the respective efficiency levels.

The collaboration between the Credit Department and the Rating Department was maintained, in order topromote consolidation and provide support for the achievement of its objectives.

Since significant improvements are not expected in the reference economic context, the strategy of action of theCredit Department will continue to follow high standards of discipline, indispensable for the safekeeping of theBank's assets.

STANDARDISED RECOVERY DEPARTMENTThe Standardised Recovery Department resulted from the split, in February 2010,of the Credit Recovery Department,the mission of which is the follow-up of Customers with total liabilities lower than 1 million euros.The deteriorationof the economic-financial environment of the Portuguese economic business structure, with a significant increase inoverdue loans, impairments and provisions, justified the focus on the segmented treatment of Customers under aprocess of loan recovery or which have been declared insolvent.

The Standardised Recovery Department defined as its main strategic vector the consolidation of the operativemodel of Retail recovery, having for the effect developed a series of initiatives over the year, in particular the launch ofa injunction procedure whose operative enabled its broad application and the strengthening of the mechanisms for thecontrol and follow-up of Customers whose debts had been sent to the National Injunction Office.

In the area of judicial recovery, a survey was carried out on the operative procedure of these Recovery Units,with theassistance of internal consultancy, with a view to procedural standardisation and the alignment in the legal recoverystrategy, when at a decision making phase of various of the proposed initiatives, namely the dematerialisation of thephysical archive, within the legal applicable framework, and the automatic distribution of due debts to law firms, anessential requirement for the definition and assessment of its respective performance.


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Another important initiative taken in 2010 was the “Optimisation of Credit Recovery Management Project”.Thisinitiative aimed at endowing the recovery process with greater effectiveness and higher efficiency levels.This projectincluded, in particular, the following initiatives:

Process of automatic collection of information for the effect of the calculation of Loss Given Default (LGD),with the ongoing collection having been implemented by the teams, and the collection and processing of historicinformation being at a final stage;

Implementation of the new tool supporting the calculation of LGD;

Definition of a measurement of effectiveness for loan recovery associated to the phase of the process and tothe Recovery Unit;

Preparation of a dashboard with the key indicators on portfolio management, efficiency and performance, withdaily updating and available to all levels of the structure;

Introduction of communication and collection scripts aimed at increasing the efficiency of the teams throughthe standardisation of the manner Customers are approached, according to their profile and products in default.

Note should be made of the Outsourcing Management, which, in 2010, completed its first year of collaboration withcompanies specialising in non-performing loan (NPL) market servicing, which has enabled the maturing of thesepartnerships and the testing of solutions to complement those adopted internally.

Regarding the operational support given to loan recovery, particular note should be made, in 2010, of the area ofprocess investigation, of the reorganisation of the respective teams, the start-up of documental digitalisation and theautomation of the underlying written communication.

A difficult economic environment is expected for 2011, which will require the different Recovery Units to search fornew and better restructuring solutions, adjusted to the real capability of the Customers, the implementation of betterinternational practices in the use of judicial and extrajudicial recovery instruments, with a view to the achievement ofsignificant gains in effectiveness to enable mitigating the aggravation of the portfolio of overdue loans. In this context,plans have been made for the implementation of the broad application of the judicial process of execution – executionin batch – with a view to endowing the recovery process with greater swiftness following the obtaining of executivetitle resulting from the injunction.

In order to support the compliance with the challenges of this Department, an Integrated Solution of Credit Recoverywill be developed as a tool to support the recovery process end-to-end and to provide operational, technical andrecovery strategy support, with priority being given to the judicial recovery process.

SPECIALISED RECOVERY DEPARTMENTThe Specialised Recovery Department resulted from the autonomy given to the Major Risk and InsolvencyCentre Units, formerly under the Credit Recovery Department. Its mission consists essentially of the follow-upand management of the liabilities assumed by Customers or economic groups with foreseeable or effectivedefault, involving over 1 million euros, as well as all Customers in solvency proceedings, through actions which seekto minimise the Bank's risk of economic loss. In this way, the Bank seeks to achieve greater specialisation andefficiency in loan recovery in the company segment.

The recovery work carried out in this Department essentially seeks the recovery of the values of overdue loans,provisions and impairment, in the perspective of reducing the value of loss or costs to the Bank.The recoveryactions are essentially processes of restructuring of overdue loans, associated to the increased levels of protectionof Bank loans, especially the strengthening of the guarantee levels and increase of collateral.

The adjustment of the recovery processes developed is underway, in order to comply with the new format ofautonomous action and to the market conditions resulting from the segmentation. For this purpose, a functionalanalysis was carried out of the necessary alterations, various working parties were constituted in a projectperspective which should conclude their work during 2011. These projects involve issues related to theReorganisation of the Insolvency Process, EmployeeTraining,Motivation,Organisation,Methods and Communication,Outsourcing, Facilities and Contracts, among others.


LITIGATION DEPARTMENT2010 was the first full operational year of the Litigation Department.The actions developed during the year had threemajor objectives: i) a strong focus on increasing the judicial recovery of loans; ii) optimisation of results in Litigationproceedings and iii) consolidation of the recent structure and internal reorganisation, so as to endow the newDepartment with resources regarding information technology and control, indispensable to increasing the activity levels.

The progress achieved is visible in the area of management information, especially in the Litigation area, awaitingdevelopments in the Credit Recovery System (software managing the recovery proceedings in litigation), whichwill enable better follow-up, information and control of this type of proceeding and, at the same time, the possibilityof responding in a more effective manner to internal and external requests.The following are also of importancein the activity of the Litigation Department: i) collaboration in training actions, especially those aimed at Employeesof all areas of credit recovery and the legal advisory services, provided by the lawyers of the Litigation Departmentto the Credit Recovery Departments and ii) the internal legal counsel provided in credit recovery proceedings,in particular those involving greater banking technicality, so as to streamline costs related to lawyers and favourresults.

The Credit Recovery activity, apart from the technical-legal support provided to the more complex restructuringof loan recovery of the Specialised Recovery Department, recovered 106.4 million euros of overdue loans andpromoted the recovery of litigious loans not immediately due, in the value of 39.1 million euros.

In Litigation activity particular note should be made of the Bank success rate of approximately 95% in actionsagainst the Bank, in the obtaining of favourable judicial decisions and agreements/transactions, with a very positiveimpact on the costs supported by the Bank arising from indemnities payable. 264 proceedings were settled,corresponding to 115.8 million euros, of which 100 proceedings were related to labour issues. Regarding criminalproceedings, there was an increase in the number of entries of proceedings and an increase in their complexity.151 new proceedings entered and 70 were closed.

ADMINISTRATIVEAND LOGISTICS DEPARTMENTIn the administrative and procurement fields, and with the objective of cost control, particular note shouldbe made to those related with procurement costs, with the alteration of the software solution, the reductionof postage costs and travel costs, the release of warehouse space through donations and the destruction ofobsolete articles and the reduction of approximately 10% in Employee/branch costs. All these actions werecarried out without lowering the overall quality of performance. For 2011, the effort towards the streamliningof procedures will be continued with the consequent reduction of costs, in particular in the heading “Otheradministrative costs”, namely in terms of the revaluation of the procurement system and fleet managementand, taking advantage of the liberalisation of the postal system, regarding negotiations conducted with all theoperators, aimed at obtaining better terms.

The activity of the Insurance Management Unit, in 2010, involved negotiation focused on the products withgreatest impact on costs and savings through the reanalysis of contracted objects and guarantees in the orderof 2 million euros. In 2011, the focus implied the negotiation/renewal of contracts, with a view to the sustainedreduction of costs related to the Bank's own insurance portfolio.

In the Works Management and Maintenance Department, the focus, in force since 2009, continued in termsof control of costs and investment. For this reason, great pressure was placed on the review of processes andrelease of space, with 12,000 m2 of office, archive and warehouse space released, while programmes weredeveloped for the renegotiation of contracts.

In 2010, the Procurement Department continued and consolidated the strategy which had been followed overthe last few years, comprising the activities of: i) negotiation and contracting of goods and services for the Groupwith best quality/price relation; ii) search, together with the internal Customers, for more efficient and economicalternative solutions; iii) support the international operations of the Bank, through direct negotiations, consolidationin overall contracts advisory and benchmark services, and the provision of integrated management tools forprocurement and contracts; and iv) assessment of suppliers and consequent taking of corrective measures. Ananalysis was recently made on the Procurement function at Millennium bcp by an international consultant whoconcluded that the Procurement Department is well positioned in relation to its Peer Group in terms of: i) areasunder negotiation; ii) empowerment and achievement of results and iii) efficiency of processes in terms of thesize of the department versus the level of national and international coverage and depth of the action.


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PREVENTIONAND SAFETY OFFICEThe Prevention and Safety Office is structured in three areas: i) Physic Security, ii) IT Systems Security andiii) Business Continuity.

The Prevention and Safety Office continued to develop its activity in minimising the likelihood of the occurrenceand impact of harmful situations to the personnel and operations of the Bank’s institutions, through improvedeffectiveness and efficiency of the safety system and consequent decrease of risk and reduction of the associatedoperating costs. Among the series of actions developed during this period, the following were of particularimportance:

Conclusion of the roll out process of the Digital Video Surveillance System, with 893 systems having beeninstalled in branches and 22 in buildings;

Technological renewal of the safety systems against theft and intrusion in 312 branches and in two centralbuildings;

Technological renewal of the access control system, to be implemented in a phased manner and starting in thebuildings ofTagus Park;

Installation, under the SR-07 project, of the information systems platform (SITUATOR) in the new Safety Roomwhich internally centralises the monitoring of alarms;

Evacuation exercises in all central buildings with a view to testing the Emergency Response Plans.

During 2010, the Bank continued to develop its activity relative to the security of the information systems,applying strictcontrol based on the international standards, namely “ Standard ISO2700”.

Particular concerns for 2011 include, in particular, the: i) continuation of the roll out for the implementation of theSR-07 project, which is expected to integrate all the branches in 2011; ii) continuation of the technological renewalprogramme of the intrusion centres, with this intervention being planned for 250 branches; iii) continuation of theprocess, in phases, of the technological renewal of the access control system in the central buildings; iv) migration tosegregated VLAN of the digital video surveillance system; v) evacuation exercises in all central buildings to testpromptness and emergency response capacity and vi) review of the entire framework of rules on physical safety.

Creating awareness of the importance of Security, indispensable to developing a permanent culture of securityat the Bank, namely among the Stakeholders, was one of the priorities for 2010.This awareness was carried outthrough different initiatives, namely the publication of newsletters on security aimed essentially at Internet BankingCustomers, the insertion in the internal and external portal of recommendations and notices on security,participation in the Bank's initiatives regarding the Culture of Rigor and the publication of an internal frameworkof rules covering a broad group of sectors.


The major concerns for 2011 were evident in the development of the activity associated to the classification ofinformation to be carried out by the different areas of the Bank, based on a computer application developed tothis effect, to which clear rules on the handling of this information will be associated, based on the level of therespective classification.The assessment of high level risk to the Bank as a whole and the assessment of detailedrisk for some highly critical applications will also be considered a constant concern in all the activities that theInformation Security Unit will develop in the following year.

The resilience of the Bank's Business Continuity Plan was strengthened through the definition of contingency proceduresfor critical Business Processes and information systems.

The Bank approved the strategy of Business Continuity exercises and the programme of tests for the two-year period2010-2011.The test strategy determines the training of all the Business Units operating critical business processes,through regular tests of increasing complexity and realism.Note should be made of an integrated exercise, carried outin June, which covered, in a coordinated manner, emergency response, crisis management and business recovery in analternative place, and mobilised approximately 600 Employees of the Bank, as well as teams providing logistic andtechnological services.

In 2011, the consolidation of the Business Continuity culture at the Bank will also be pursued through the strengtheningof communication and the launch of a training action for all Employees.


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CORPORATEAREAS

The Corporate Areas include the Compliance Office, the Planning and Budget Control Department, theResearch Office, the Management Information Department, the Accounting and Consolidation Department,the Investor Relations Depar tment, the Audit Depar tment, the Legal Depar tment, the Tax AdvisoryDepartment, the General Secretariat, the Millennium bcp Foundation, the Communications Department, theCompany Secretary, the Foreign Business Support Unit, the Strategic Projects Unit, the Staff ManagementSupport Depar tment, the Risk Office, the Rating Depar tment, the Financial Holdings and ValuationDepartment, the Quality Department, and the Assets and Liabilities Management Department.

During 2010, the activity of the Corporate Areas remained focused on initiatives regarding Employee management,support to strategy development, the strengthening of discipline in risk and capital management, simplification ofthe Bank and improved efficiency.

COMPLIANCE OFFICEIn 2010, the process of reorganisation and restructuring of the Compliance Office was consolidated, with thedefinitive implementation of the procedures for the formalisation and control of fundamental tasks, analyses,recommendations and mechanisms for effective compliance with the philosophy of action inherent to theinternal control system.

The Compliance Office continued to meet the demands of the fundamental issues of control of complianceattributed to it, namely the prevention of situations of non-compliance and the follow-up of the most criticalprocesses – regarding issues of compliance with basic rules on the formalisation of transactions and operationsby all commercial areas, coordination of the implementation of new rules and legal and regulatory standardsand the strengthening of the most critical areas in the context of money laundering, the financing of terrorismand market abuse processes.

It was also possible to comply with the objective of systematisation and proactiveness in the control of compliancerisk in terms of operating processes (Know Your Processes), thus continuing the Group's Employee trainingprocesses. The efforts dedicated to interaction with external operations and harmonisation on matters ofstructural and structuring policies were strengthened, through the systematic review of the Compliance Manualand the different policies included therein, namely Policy on Conflicts of Interest, Policy on Customer Acceptance,Policy on Account Opening and Policy on the Monitoring of Money Laundering Risk, as well as the formal adoptionof these structuring compliance documents by the Group's operations.

Regarding action within the Group, the scope of systematic intervention was expanded. Simultaneously, itwas developed relations in the follow-up of the operations and the institutionalisation of formal mechanismsfor the coordination and interaction of the different Compliance Offices.

PLANNINGAND BUDGET CONTROL DEPARTMENTThe Planning and Budget Control Depar tment, under its attributions, ensured compliance with the dutiesto provide information and periodical repor ting to the supervisory authorities, collaborated in thepreparation of relevant financial information for disclosure to the market and proceeded with the analysesand preparation of documents for the meetings of the Executive Board of Directors, CALCO, AuditCommittee and Supervisory Board.

In addition to the activities focused on the regular sphere of action, the Planning and Budget ControlDepartment collaborated in the strategic planning process, namely in the preparation of the individual andconsolidated budgets for 2011, and also coordinated and/or participated, in collaboration with other BusinessUnits of the Bank, in a variety of initiatives and projects involving developments in progress to meet new


regulatory requirements and in the identification and implementation of opportunities for improvements interms of the internal control system. Also of importance was the strengthening of the proactive role in thecontrol of the Bank's costs, through the close follow-up of its main drivers and the strengthening of theconnection of the Balanced Scorecards methodology to the strategic process, its expansion to other CentralService Departments and the deepening of its use as a tool to follow the performance of the Organic Units,on a monthly basis, to achieve Bank's strategic objectives.

In 2010, the organic structure of the Planning and Budget Control Department was simplified, through theincorporation of the functions of the former Performance Management Area in the Analytical InformationArea, enabling synergies to be gained and greater coordination regarding the budgetary process, derived fromthe strategic reflection of the Organic Units and the consequent definition of their objectives, evidenced in theBalanced Scorecards, in addition to the subsequent monitoring of compliance with the budget and objectivesof the Organic Units.

RESEARCH OFFICEIn 2010, the Research Office ensured compliance with the Bank's periodic reporting obligations as a publiccompany, supported the preparation of the Internal Control Report, collaborated in the preparation and analysisof documentation for the meetings of the Executive Board of Directors and Supervisory Board, prepared thepresentations, interventions and communications of Members of the Executive Board of Directors, ensured BCP'sdebt investor relations and prepared meetings with the rating agencies, at the same time coordinating the repliesto their occasional requests for information.

The Research Office monitored and analysed the situation of the economy, markets and financial systems, andcollaborated in initiatives organised by the different Organic Units of the Bank, directed at internal and externalCustomers, drawing up economic publications on a regular basis for internal disclosure and taking part in forumsrelated to subjects on regulation and supervision of financial systems.

The Research Office prepared the internal study of the sum of parts of the BCP Group, including analysis byactivity segment in Portugal, and various studies on capital management and optimisation and on the performanceof the Portuguese and European banking sector. It also collaborated in the process of the assessment of anyexistence of impairment in relation to the financial holdings of the Group and participated in various corporatefinance projects, in particular the sale of 95% of the holding in Millennium Bank A.S. inTurkey.

During 2010, the sustainability area ensured the reporting to the Stakeholders through: i) the sustainability report;ii) response to international analysts of Corporate and Social Responsibility; iii) participation in national initiativesinvolving the assessment of Governance practices and social and environmental impacts arising from the Bank'sactivity and iv) publication on the Bank's internal site of studies carried out on sustainable development.TheResearch Office carried out the monitoring and reporting to the Sustainability Coordination Commission andStakeholders Commission, on the execution stage achieved in the activities laid out in the Sustainability MasterPlan for 2010-2012.

Under the protocol signed with Universidade Nova de Lisboa/School of Technical Sciences, it organised anenvironmental workshop to explore the main opportunities for and risks to the banking sector arising fromclimate change. In the field of innovation, 2010 was marked by the continued exploration of the concept ofdirected creativity, with the most mobilising ideas having been implemented together with the Staff ManagementSupport Department, the commercial area, Millennium bcp Ageas and the Operations Department.“Open Door”workshops were also carried out to foster the exchange of experiences and sharing of best practices, and the“One Thousand Ideas” workshop to award the best participation of 2009. In 2010, this programme wasdistinguished by the Corporate Executive Board, through its human resources and leadership managementpractice (CLC Human Resources) as the “Best Demonstrated Practice” in the involvement of the human capitalin the Organisation.


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MANAGEMENT INFORMATION DEPARTMENTIn 2010, the main strategic objective of the Management Information Department was the very close monitoringof the evolution of the revenue of the Commercial Networks, detecting constraints, recommending methods fortheir resolution and indicating possible means for the creation of new income sources.

In addition to the normal process of control of the performance of the Networks, both in terms of volume andregarding the operating budget, monitoring of margins on the constitution of deposits and loan operations, andevolution of the main types of commissions, the Management Information Department was given the responsibilityfor the income improvement project teams, which are also composed of members of the Marketing Departmentand Employees of the IT and Operations Departments.The objective of these teams was to increase the revenuegenerated by the Commercial Networks, adjusting prices, creating new sources of revenue and reducing theoperational risk associated to the generation and accountancy process of the operations.

The Management Information Department is also responsible for the proposals of adjustments in deposits andliquidity premiums associated to the loans, a fundamental aspect of the price fixing model, which it also generatesand controls.At the same time, the Management Information Department is responsible for the management andcontrol of the different incentive systems of each of the Networks, also aimed at increasing the revenue of theCommercial Networks.

Furthermore, as has become usual, the Management Information Department played the role of coordinationof the budget process of the Commercial Networks, gathering proposals, notifying on the need for correctionsand preparing the presentations for the Executive Board of Directors and Coordination Committees of eachNetwork.

ACCOUNTINGAND CONSOLIDATION DEPARTMENTIn 2010, the Accounting and Consolidation Department pursued its mission to prepare the Consolidated FinancialStatements of the BCP Group, always with the objective of presenting a true and appropriate reflection of theentire Group in accordance with the accounting standards and rules defined by the different regulatory entities.Regarding the activity developed by the Accounting and Consolidation Department, during 2010, special mentionshould be made of the reformulation of the reporting on Monetary and Financial Statistics to the Bank of Portugal,the continued implementation and fine-tuning of new control mechanisms, as well as the strengthening ofpartnerships with centres of control of the operating areas of the Bank, with a view to improving the quality andaccuracy of the accounting information, the development of a series of ratios, indicators and warnings for theimproved analysis and reporting of accounting information.

AUDIT DEPARTMENTThe main focus of the activity of the Audit Department lay in the priority action areas defined in the StrategicPlan approved for the four-year period of 2010/2013. In this context, the Audit Department proceeded with aninternal reorganisation of its staff, with the creation of teams specifically dedicated to the issues of Supervision/PermanentTeam of the Bank of Portugal, Internal Control System andWithholdingTax/MFID Audits in the FinancialArea and to Fraud in the Prevention Area, redefining the procedures in terms of all its areas.At the end of 2010,the Audit Department had 82 Employees and one intern and the Employee/Auditor ratio was 124.

The Audit Department was responsible for the preparation of the Reports on the Internal Control System of2010 of Banco Comercial Português, S.A. and other institutions of the Group, presented to the Bank of Portugaland to the Securities Market Commission (CMVM) at the end of June, having centralised the contributionsreceived from them and sent the final versions of the documents in question.The Audit Department also ensurescontinuous monitoring, with the periodic preparation of progress reports for the Executive Board of Directorsand Audit Committee, on the implementation by the different organic units of the recommendations issued bythe actual Department, the Supervisory Authorities and the External Auditor reported in these documents.

Pursuant to the competences attributed in this matter, the Audit Department followed the actions of theSupervisory Authorities, in particular the Permanent Team of the Bank of Portugal and the CMVM and ensuredcomplete and prompt compliance with the respective requests for information.


The Audit Department also ensures the implementation of activities relative to the Independent Review Function,necessary for the good pursuit of the Bank's candidacy under Basel II, with special focus on the audits to creditrisk, monitoring and implementation of the recommendations issued by the Bank of Portugal and by the actualAudit.

As an integral par t of its Audit Plan, the Audit Depar tment proceeded with the systematic analysis of allloan operations, entries into recovery and impairment variations of values above the limits defined for theeffect in the Strategic Plan and carried out a series of audits, especially regarding the analysis of mattersof behavioural nature, with par ticular focus on procedural rigor with greatest impact on Customerrelations.

The prevention and mitigation of the risk of fraud, as well as the detection and investigation of situations orattempts of fraud, internally or externally, and the conduct and follow-up of any disciplinary or judicial proceedingsresulting thereof also constituted a priority in the allocation of the Department's resources. As result ofinvestigations carried out in Portugal related with potential improprieties occurred in 2010, 38 Employees hadbeen sanctioned for violation of rules.

At the Group level, the Audit Department exercised its function as coordinator of the Internal Audit function andproceeded with the follow-up of the activity of the subsidiaries in Portugal and abroad, in particular with respectto liquidity management and information systems, providing internal audit services to entities which, due to theirsize, do not have their own audit services.

LEGAL DEPARTMENTThe Legal Department continued to pursue its goals of improving services provided by the Bank, by increasing thelegal security of operations in order to safeguard the Group’s interests, thereby seeking to avoid potentially litigioussituations as well as liabilities stemming from the activity of the various departments of the Bank.The focus was onincreasing prior consultation, either by intervention of the Legal Department itself or by request from the other areasof the Bank.

TAXADVISORY DEPARTMENTIn 2010, the Tax Advisory Department was reorganised and now concentrates exclusively on tax matters withits functions and competences defined more precisely.

In the context of these functions and competences, and with a view to minimising risk regarding tax matters,during 2010, the Tax Advisory Department supervised compliance with obligations related to tax by thecompanies of the Group, in particular the tax statements relative to Corporate Income Tax (IRC) for 2009.It also answered or coordinated the answers to the requests on tax matters of the companies of the Group.

TheTax Advisory Department supervised the various operations involving the liquidation or disposal of companiesof the Group, participating in their design and analysing their respective context and the respective consequencesfor tax purposes. It also participated in various other operations carried out by companies of the Group, with aview to their optimisation for tax purposes or reduction of risks related to tax.

EMPLOYEES SANCTIONEDAS RESULT OF RULES VIOLATION

‘10 ‘09 ‘08 Change % ‘10/‘09

Infringement of rules

Internal rules 15 15 14 0.0%

External rules 23 14 25 64.3%

TOTAL 38 29 39 31.0%


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The year 2010 featured numerous alterations to tax legislation with relevant impact on the companies of theGroup, relative to the products traded by them and services provided by them.This was the case of the StateBudget for 2010 and the successive packages of measures related to the Stability and Growth Programme.TheTax Advisory Department monitored the disclosure of these alterations and followed their implementation atthe level of the Group. Likewise, theTax Advisory Department analysed and issued an opinion, when applicable,on the proposed alteration of Portuguese and community legislation which was subject to the assessment of thecompanies of the Group through the associations to which they belong (such as, for example, the PortugueseBanking Association and the Banking Federation of the European Union) and represented the Group at meetingswith theTax Authorities.

Following the creation of the PriceTable established in Notice of the Bank of Portugal nr. 8/2009, theTax AdvisoryDepartment began the systematised review of the tax framework and all the items established therein, in orderto ensure the respective updating and minimise the risk of any inaccuracies.

GENERAL SECRETARIATIn the context of its mission, in 2010, the General Secretariat assumed the administrative management of andlogistic support for all the statutory bodies of the Bank, the functions in the area of institutional relations andrepresentation of the Bank, the logistic organisation of events with the presence of the statutory bodies or anyof its members, the management and coordination of the people providing services to the governing bodies, thecoordination of the service of the corporate areas, the management and maintenance of the meeting rooms andtheir equipment, dining rooms and vehicles at the disposal of the governing bodies, the management of theinvoicing of expenses related to the activity of the statutory bodies, the organisation and preparation of theceremony for the Awards of the 25th Anniversary of Millennium bcp, as well as other activities of administrativenature.The General Secretariat sought to develop its activities in strict observance with good budget and costmanagement, without placing in question the quality required in these activities.

COMMUNICATIONS DEPARTMENTThe communication strategy of Millennium bcp is based on the pursuit of real proximity to Customers, Employees,institutional entities and all other Stakeholders. Regarding commercial communication, the advertising campaignscombined commercial aspects with a conscious discourse placed within the context of the current economicsituation, constraints and challenges of the market. For this reason, savings products were highlighted during 2010as the most important part of the Bank's commercial campaigns. Furthermore, and as a result of the Bank havingcelebrated 25 years of existence this year, the opportunity was taken to thank all the trust that Customers andShareholders have shown in the Bank, as well as the dedication of its Employees.The communication strategy as ofthe second semester of 2010, both commercial and institutional, was based on a brief history of the path taken bythe Bank over the past 25 years, combined with a series of commemorative actions for Employees and Customers,as well as the general public. In this way, the Institutional Campaign – Bank Anniversary – “25 Years of sharing thefuture withYou” was developed, and used as the starting point for the rest of the campaigns. Particular note shouldbe made of the Millennium Meetings in the districts ofViseu, Portalegre, Beja,Vila Real, Guarda andViana do Castelo– in which 2,909 Customers and 711 Employees participated, with the objective of reaching all the Portuguesedistricts thus being achieved – and the activation of the Millennium Cup of Portugal and Rock in Rio-Lisbon 2010sponsorships.This last event,which registered over 330 thousand visitors, strengthened the perception of Millenniumbcp as the dominant banking brand in the field of music, and reached the highest point of fame ever with 72.6% ofbrand awareness, according to the BrandScore study of Grupo Consultores. Finally, in the context of internalcommunication, particular note should be made of the internal portal, Millenniumnet, the main communicationplatform,whose objective is informing Employees on the most important aspects of the life of the Organisation.Thevideo-on-demand technological solution is increasingly the vehicle of choice for the Bank's Employees, makingcommunication more effective and guided.This technological integration enables Millennium TV to be increasinglyused as an essential resource in the process of dissemination of information and good practices within the Bank.Special note should be made of the start-up of a cycle of ten interviews by the journalist António Perez Metelo withsenior executives of the Bank – an initiative which reflects the commitment to transparency that the Administrationhas with the constituents of Millennium bcp, starting with its own Employees.While not on a regular basis, the scopeof the action of Millennium TV in 2010 was extended to external audiences, with the placement of videos on itsown channel onYoutube, as was the case of the interview with the Chief-Economist of Millennium bcp in May.


COMPANY SECRETARYThe Company Secretary carried out integrated supporting activity in the Corporate Areas of the Bank.TheCorporate Secretary reports to and depends directly on the Executive Board of Directors.The central andpredominant mission of this position is to ensure the secretarial work of the meetings of the CreditCommission, a specialised commission of the Executive Board of Directors and the meetings of the GoverningBodies, certifying the acts carried out and empowering the respective members. The Company Secretaryalso fulfils the requests of the supervisory entities with respect to issues related to good compliance with theprinciples of corporate governance, schedules Shareholders' requests in the exercise of their right toinformation, certifies copies of minutes and other corporate documents, and follows the process recordingall the acts of the Company at the Bank of Portugal and Commercial Registers.The holder of this positionparticipates actively in the promotion of the Annual General Meeting of Shareholders and preparation of theCorporate Governance Report.The Company Secretary contributes to and collaborates with all the servicesof the Bank, both executing and validating any act related to the activity pursued by the Bank.

FOREIGN BUSINESS SUPPORT UNITThe Foreign Business Support Unit is an advisory unit of the Executive Board of Directors, with competences inthe follow-up of the activity of the international operations. Included in its scope of action is the analysis ofperformance and support to local Executive Board of Directors, organization and participation in the quarterlymeetings of the European Business Committee, as well as the analysis of the matters assessed by the GoverningBodies and Audit Committees relative to these operations.

This area also coordinates and participates in international projects of a strategic, corporate development andfinancial nature in terms of the international operations, such as the review of business models, the review ofspecific business areas and other projects with a structural impact.

In 2010, the Foreign Business Support Unit integrated and stimulated various initiatives such as the strategicreformulation in Poland, Romania, USA and Greece, in addition to providing support for the process of the saleof the operations inTurkey and in the USA.

STRATEGIC PROJECTS UNITThe mission of the Strategic Projects Unit, created in the first quarter of 2010, is to provide technical support tothe Executive Board of Directors in strategic decision making processes concerning the Group’s business andoperations through the preparation of strategy reports, studies and analyses, coordinate or participate in structuralor transversal projects, in coordination with other organic units and external consultants, request, centralise,analyse and provide information relative to strategic projects, promote the disclosure of relevant strategicinformation and ensure relations with a variety of external entities of diversified scope.

Following its constitution, the Strategic Projects Unit proceeded with the collection of information on the strategicprojects implemented at the Bank since 2008, the construction of an Info Centre with a view to the centralisationand dissemination of information relative to strategic projects, research and Employees, the Unit began quarterlyreporting to the Executive Board of Directors on the strategic projects in progress or concluded in the last 12months, assumed the coordination of relations with the external consultants of the Bank and coordinated therenewal of collaboration with different external entities and respective dissemination and promotion in therelevant areas of the Bank.

In the context of its collaboration with the Staff Management Support Department, the Centre participated inthe “Ser Millennium” (“Being Millennium”) programme, in the proposal of topics for the “GrowTogether” forumand in the celebration of a partnership with AESE School for the writing of case studies on Millennium bcp.

The Strategic Projects Unit participated in and promoted various projects of structural and/or transversal nature,in articulation with other units of the Bank and external consultants.


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STAFF MANAGEMENT SUPPORT DEPARTMENTThe activity developed by the Staff Management Support Department, in 2010,was characterised by strong dedicationto the strengthening of motivation in terms of the Employees' involvement with the Bank’s values and strategy.Significant investments were made in the improvement of skills and the professional valorisation of the Employees,promoting increasingly higher standards of excellence and discipline. Programmes such as “Being Millennium”,“WeValue Experience” and “A day with the Customer” reflect the main values of the Bank, namely regarding respect forPeople and Institutions, the drive towards excellence, trust and focus on the Customer.

The pursuit of the daily practice of discipline, in a perspective of compliance, ethics and risk management, led to thedevelopment and implementation of the“Culture of Rigor” programme, applicable across the entire Bank and whichwill remain in progress during 2011.

In partnership, and providing support to the activity of the different units of the Bank, specific training programmeswere designed for the area of IT (“ITTraining Academy”), and Companies and Retail (“Quality of Sales”). Leadershipskills were strengthened, namely through the pioneering partnership with the Military Academy, which involved 50managers of the Bank.

The strong involvement with the academic world was maintained in a perspective of sharing of experiences andattraction of talent, as well as in the development programmes aimed at specific segments of Employees (Grow Plus,People Grow,Young Specialist, Grow Fast, Grow in Retail, Master in Retail and Leadership in Retail).

Mobility continued to be encouraged.The Commercial Skills Development Programme (PDCC) and “New Routes”programme are stimulating career opportunities and challenges for those participating in them, at the same time,contributing to strengthen the proximity of the Bank to its Customers.

Underlying the process of counselling and supervision towards the development of skills, the Individual PerformanceAssessment System offers opportunities for dialogue between the senior staff and the rest of the Employees, enablingthe deepening of the culture of personal accountability for the respective careers of the Employees.

RISK OFFICEIn 2010, the Risk Office pursued activities relative to the promotion and coordination of risk management andcontrol, and reporting – both external and internal – relative to the different types of risk incurred by theGroup, in accordance with business development.These functions are included under the strategic objectivesof the Group relative to the improvement of solidity and trust, in addition to being integrated in an effectivemanner the Group's internal control framework. In this way, the activity developed by the Risk Officecontributed in an important manner to the improvement of the internal control environment, through thefine-tuning and strengthening of the policies and instruments for the measurement and control of risks. In thisregard, note should be made, for example, of the strengthening of the promotion and coordination of actionswhich enable the policy of better and greater collateralisation of credit to take effect – especially amongstmajor debtors – or the implementation of precise classifications for non-performing loan positions (or insituations equivalent to default, within the framework created by specific internal rules. At the same time, theRisk Office coordinated the application of the Group to the use of regulatory capital calculation methodologiesfor credit risk based on Internal Ratings (IRB), which was formally approved by the Bank of Portugal with effectfrom 31 December 2010 onwards.The activities and developments in the risk management area are coveredin detail in the chapter on “Risk Management”.

RATING DEPARTMENTThe Rating Department, created in 2009, stabilised its internal structure during 2010, which is based on fiveunits: i) the Financial Analysis Unit, responsible for ensuring the quality of the accounting information of theCustomers and its availability in the Bank's system, generating the qualitative and quantitative informationused in the statistical and application models for companies; ii) three Rating Units, responsible for assessingCustomer risk and organised according to the respective segmentation: Small, Mid or Large Corporate andSpecialised Financing, Real Estate, Bank and Sovereign, among others and iii) the Technical Support Unit, withresponsibilities in terms of planning and organisation, of databases, production of management informationand monitoring of results.


Regarding portfolio risk assessment and the internal models used, in 2010, the following were of particularly noteworthy:

Stabilisation of the application of the Small Corporate and Mid Corporate model and conclusion of the portfolioreview based on these models.The updating of the rating of these Customers, with accounts of 2009, is at anadvanced stage, with approximately 80% of the portfolio based on this information having been reviewed; it isexpected the revision, by the end of the first quarter of 2011, of the entire portfolio;

Conclusion of the development of the Large Corporate model and review of the portfolio of this segment, afterthe agreement of the Bank of Portugal on the new approach;

Acquisition of new models and know-how from the rating agency Standard & Poors, to enable the assessmentof the risk of the different types of Customers included in the loan portfolio of the real estate sector.The fullconclusion of this portfolio is expected during the first quarter of 2011;

Full review of the Project Finance portfolio, kept under supervision in view of any need to carry out revaluationdue to alteration of the base scenarios;

Updating of the information and ratings attributed by the External Credit Assessment Institution Source (ECAIS)to the Sovereign Countries and Banks with which Millennium bcp is involved, with internal criteria having beenused for the classification of Banks without public rating. The use of these criteria was extended to otherCustomers with activities not included in the assessment, based on the models referred to above.

In 2010, the Rating Department was involved in the development of an expert judgment model for the attributionof risk levels to Customers of the Large Corporate segment, prepared according to an approach differentiatedby activity sector, concerning, namely:

The preparation of 22 different matrices, adapted to the various sectors of economic activity – including twomatrices for holdings, one for investment holdings and another for the parent company of the economic group– whose answers enable the qualitative assessment of risk;

The internal development of new local programmes for the calculation of the economic-financial componentof the different sectors covered by the matrices, as well as an associated simulator to enable the correctionsestablished in the rating assignment report;

The internal development of IT resources with a view to the preparation of proforma consolidation foreconomic groups which do not present consolidated accounts;

The preparation of validation tests for the Large Corporate model;

The supervision of the work relative to the development of a new IT tool for the management of the ratingproposals of the Large Corporate segment imposed by the new approach;

Processing of databases with a view to the identification of the models applied to each Customer.

During 2010, the Rating Department was also involved in the adaptation of the software managed by theDepartment to the National Accounting System and in the updating of all the information of the internalapplication XCRI, covering the entire portfolio. Activities are currently underway for the fine-tuning, based onacquired experience, of the Large Corporate assessment models, the preparation, together with the Risk Office,of new classifications for the Mid and Small Corporate models which should be introduced as of the end of thefirst quarter of 2011, scheduling the review of these portfolios, the preparation and fine-tuning of the multicriteriaassessment approaches so as to transform these approaches into assessment matrices enabling the coverage ofrisk segments which do not yet have an internal model, the analysis and fine-tuning of the SME models, smallbusiness application scoring for Customers without behavioural modelTRIAD, total review of the loan portfolioof the real estate sector and of real estate investment funds and the development, together with the ITDepartment, of an adequate workflow system for the needs of the Rating Department.


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FINANCIAL HOLDINGSANDVALUATION DEPARTMENTIn the beginning of 2010, the Financial Holdings and Valuation Department expanded its activity, and now alsocarries out the follow-up of subsidiaries and associated companies.At the same time, a process of validation wascarried out for the holdings in entities outside the consolidation perimeter, identifying positions for sale, inrelation to which processes were developed to encourage the interest of investors or sales intentions wererealised. Regarding the investments in liquid instruments and other loans, the Department acted to reduce thesize of the portfolio, with all the financial instruments having been derecognised, in 2010, generating a cashinflow in excess of 500 million euros. The Department will assume, in July 2010, the responsibility for thesupervision and reporting to the Executive Board of Management of the actions conducted by the differentDepartments of the Bank with a view to the sale of non-liquid assets and the respective cash inflow generatedin this process. Analyses were also pursued relative to the restructuring of participated entities, with a view tooptimising the structure of the Bank.

During the year, the Bank defined its orientation towards the strengthening of the current action in the internalcontrol of theTrading Rooms, reflected in the expansion of the reporting portfolio and greater coverage of therespective scope.The valuation processes were subject to initiatives aimed at their fine-tuning, with new processeshaving been adopted in Coverage Accounting.

QUALITY DEPARTMENTThe implemented Satisfaction Management System, which is based on Satisfaction relative to Employees, InternalServices and Customers, was updated, in view of the continuous evolution of the market.The use of the model,considered up-to-date and innovative, has evolved both in terms of the disclosure of results and, above all, in thewidespread use of these results by the areas, through the ensuring of its autonomy in the preparation of diagnosesto enable improving the Satisfaction indices which contribute to the performance indicators.

The strengthening of Process Management was a priority in 2010, resulting in the definition of a centralisedinformation structure to accommodate all the information associated to the processes, which had formerly beendispersed throughout the Organisation.

A Document Management system was created, transversal to all operations of the Group, based on a series ofmanagement principles and rules and on a technical solution which supports and ensures the feasibility of theapplication and control of these rules.This system was implemented successfully in Portugal,Angola and Romania,and is currently being finalised in Mozambique and Greece.With the conclusion of this project, the Group willbe capable of accessing the best practices of each operation from any point and developing integrated systemsfor the management of knowledge, improving the efficiency and overall quality of the services provided andpromoting creativity and the exchange of best practices.

The measurement of the internal service levels of the circuits for the preparation and authorisation of proceduraldocuments was started.This project sought to reduce the period of time between the identification of the needfor a certain procedural rule and its provision in a controlled manner to the entire Organisation.The resultsobtained show that in spite of the existence of some occasional bottlenecks which should be worked on, theprocess of production of procedural documents is efficient and meets the overall needs of Millennium bcp.

Service Orders were produced documenting the competences and responsibilities of each first line Unit of theOrganisation so as to facilitate a more thorough understanding of the actual Organisation and, at the same time,ensure full compliance with the provisions in Notice nr. 5/2008 of the Bank of Portugal, related with the internalcontrol System.

ASSETSAND LIABILITIES MANAGEMENT DEPARTMENTDuring 2010, various models of the structure and scope of the intervention of the Assets and LiabilitiesManagement Department were established, with their respective implementation having been consideredappropriate for 2011.


MILLENNIUMBCPAGEAS

Millenniumbcp Ageas, of which 51% is held by Ageas and 49% by Millennium bcp, is an institution specialisedin marketing Life insurance (risk, savings and capitalisation) and Non Life insurance (personal and property)through the banking (in par ticular), agents and brokers channels. In health insurance, Millenniumbcp Ageasalso operates via the direct channel, par ticularly through partnerships and distribution agreements withother insurers that operate in the Portuguese market. Millenniumbcp Ageas also has market leadership inPensions Fund management and, for this business, it uses both the banking distribution channel and thetraditional brokers channel.

In 2010, Millenniumbcp Ageas showed a decrease in the processed premiums of 17.9% relative to theprevious year, having been penalised by the performance of the Life business (-20.3%), since the Non Lifebusiness, in contrast to market behaviour, maintained significant growth of 6.8%. With a volume of directinsurance premiums of 1,946 billion euros and a total market share of 11.9%, Millenniumbcp Ageas waspositioned on the national market as the third largest insurance group in terms of direct insurancepremiums.

In the Life business, the volume of premiums reached 1,724 million euros, having decreased by 20.3%, aboveall due to the weak performance of the unit-linked products, where demand has been strongly constrainedby the lower level of interest shown by investors, in the current economic and financial context, forproducts of less liquidity or without guaranteed capital. However, par ticular note should be made of thepositive evolution of Retirement Savings Plan (PPR) products (not linked to investment funds), reflectinginvestment policies suited to the needs and demands of the savers. In these circumstances of par ticularlyhigh volatility and scarce liquidity in the economy, retirement products – which continue to enjoy taxbenefits – and capitalisation products with guaranteed capital and returns have become safe haven productsfor Portuguese savers, who are averse to other financial products involving greater risk.

In the Non Life business, it is par ticularly noteworthy that direct insurance premiums grew by 6.8%, aremarkable fact in view of the stagnation recorded in the insurance market (0.9% growth), once againconstrained by the poor performance of the Por tuguese economy and intense competition amongstoperators.

The consolidated net income for 2010, before Value of Business Acquired (VOBA), was 142 million euros.In spite of the difficult economic situation, Millenniumbcp Ageas showed that it has a solid and robustbusiness model, able to overcome the demanding economic circumstances, maintaining a solvency ratio farabove that required by the supervision entity.

With its excellent technical performance, a prudent investment management policy, a diversified productrange and strict control of operating costs, Millenniumbcp Ageas has been successful in overcoming theadverse factors which have strongly undermined the growth and solidity of the insurance market over thelast few years: the recessionary economic environment, the continuous rise in unemployment, the increasingpressure on financial markets, namely with respect to sovereign debt of the peripheral countries of Europeand the lack of liquidity of the markets.

The main strategic objectives that Millenniumbcp Ageas proposes to achieve in 2010 were included in themedium and long-term plan drawn up in 2005, the year of the star t-up of operations, based on four pillars:Growth, Productivity, Quality and Profitability.


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Growth: the total volumes of sale of Retirement Savings Plans (PPR) once again exceeded the values of previousyears, making 2010, for the third consecutive year, the best ever in this line of products. In spite of the alterationsto the tax system of Savings Retirement Plan (PPR) products arising from the implementation of the Stability andGrowth Plan, which will enter into force as of 2011, the positioning of Millenniumbcp Ageas products, aimed atCustomer needs in the perspective of the constitution of long-term savings for retirement, has permitted thatthe appeal of the PPR products, as a pension supplement, does not depend on the tax benefit, with the volumeof subscriptions having been balanced over the entire year.

The evolution of capitalisation insurance, after 2009 having been marked by strong growth, was as expected andabove the average of the last five years. Focus was maintained on the presentation of segmented, innovative andappealing solutions for the constitution of regular savings.This was recognised by the Customers, with the volumesof plans with scheduled contributions having grown by over 45%.

In 2010, unit-linked products continued on the trend of deceleration of new contracts began in 2009.Particular note should be made of the demand shown in this line of products in Private Banking, whichregistered a four-fold increase of the subscribed amounts in comparison with the previous year, being thebest year ever.

In spite of the adverse economic context and increased penetration of health insurance in the market andCustomer base of Millennium bcp, sales of Médis products registered a remarkable value. Médis closed thefinancial year of 2010 with a market share of 25%, with more than 455,000 Customers, a 97% level of satisfaction,assessed by an independent study, leadership in its segment and in terms of brand reputation and awareness andhaving received the “SuperBrand” award for the fifth year consecutively, in addition to the highest net income forthe year ever achieved.

The continuous offer innovation and the diversification of business channels enable the total volumes of new riskproduct sold actively (Life and Non Life) to remain unaltered. In view of the particularly difficult economic climatefor companies, it is important to highlight the close collaboration with EuroNegócio, the success of the specialisedsupport model in the Business segment, and the double digit growth in Corporate bancassurance. Theconsolidation of the business channel directed at the SME segment, based on a carefully selected network ofagents and brokers, contributed, as expected, to the increased market share of Ocidental Seguros (Non Life), onceagain a remarkable fact in such a challenging year as was 2010, and in a concentrated, mature and competitivemarket.

In spite of the expected decrease in the volume of loan concession and the increase in spreads, the penetrationrate of insurance associated to loan operations remained based on levels of excellence constituting internationalbenchmarks.

Productivity: this is a continuous process transversal to the entire Group, where the main objective is thedevelopment of processes, automatization and levels of control to enable the continuous and sustainedimprovement of service levels and, consequently, an increased efficiency of the different areas of the company.During 2010, under M4 – a transversal programme with the objectives of Improving productivity, Improvingprofitability, Improving service levels and Improving motivation – launched at the end of 2009, the restructuringof the back-office areas of the Non Life business were concluded.

Quality: the sustained improvement of the quality of the service provided to External Customers and InternalCustomers has been and will continue to be a major priority and, although the satisfaction indicators evolvedfavourably in 2010, Millenniumbcp Ageas is committed to continuous improvement.

Profitability: this is a consequence of the three pillars noted above, where the objective is to ensure attractiveremuneration and sustainability for Shareholders.

Evidence of the overall good implementation of the medium and long-term plan and the recognition from themarket for the work it has undertaken over these past few years was shown by the fact that, once again, OcidentalVida was awarded the prize of “Best Large Life Insurance Company” in Portugal by the Magazine Exame.


2011 will, once again, represent a huge challenge, possibly the greatest of recent years, with Millenniumbcp Ageasbeing expected to face yet another year of extremely adverse economic, financial and social conditions, wherethe punitive austerity measures approved recently in the State Budget for 2011 and in the Stability and GrowthProgrammes will place additional pressure on the Company.The strategic focus should continue to concentrateon profitability and financial solidity, based on aggressive commercial action, growth, productivity, quality and costcontrol.

SUMMARY OF INDICATORS

‘10 ‘09 Change %‘10/‘09

DIRECT WRITTEN PREMIUMS

Life 1,724 2,163 -20.3%

Non Life 222 208 6.8%

TOTAL 1,946 2,371 -17.9%

MARKET SHARE

Life 14.2% 20.83%

Non Life 5.3% 5.03%

TOTAL 11.9% 16.33%

Technical margin (1) 257 232 11.1%

Technical margin net of operation costs 165 146 12.6%

Net profit (2) 142 127 11.4%

Non Life claims ratio 65.5% 60.9%

Non Life expenses ratio 25.9% 23.2%

Non life combined ratio 91.4% 84.1%

Life net operating costs / Life investments 0.83% 0.80%

Million euros

(1) Before allocation of administrative costs.(2) BeforeVOBA (Value of Business Acquired).


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